annual report - blc bank...financial highlights 24 financial analysis blc bank vs alpha bank group...

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R A T E S O C I A L R E S P O N S I B I L I T Y

A N N U A L R E P O R T

I N T R O

As a responsible corporate citizen, we understand that our activities have important and direct consequences on our community therefore, we are committed to sustainable development with the aim of making a difference in four areas: Our Business, Our People, Our Environment and Our Community.

To better depict our actions, we launched the ambitious Boomerang CSR program, which represents BLC Bank’s commitment to contribute energy and resources that will bring in return sustainable benefits and well-being to the community and the Bank.

1 - Our Business:

We are committed to deliver value that matters to our customers; therefore,

We have strong governance rules and targets that are mandatory for the entire stakeholders: Code of ethics, Anti-Money Laundering policies, Compliance procedures, Procurement Policy. The management is responsible and accountable for implementing the zero-tolerance for corruption policy. Management periodically ensures that bank’s anticorruption compliance program and business practices are up to date. Our Management Committee, Disciplinary Committee, Purchasing Committee & Audit Committee oversee the Ethics & Compliance program as a whole. Our internal compliance, training and awareness programs are designed to prevent, detect and remedy policy and Code violations.

We have set, to ensure appropriate corporate governance and an ethical and fair trading with our business partners, a series of procurement code of conduct policies related to the suppliers we deal with ensuring strict gender equality measures.

We strongly promote the purchase of green items subject to both functional and financial qualifications in line with our Corporate Social Responsibility pledge.

2 - Our People:

We are committed to create growth opportunities to our employees with the aim of becoming the employer of choice; therefore,

We promote gender equality and provide a healthy and fair working environment. In this regard, we became the first and only Bank in the MENA region to commit to the UN Global Compact / UN Women Empowerment Principles.

We offer flexible working hours to new mothers returning from their maternity leave.

We provide equal opportunities to all employees and job applicants.

We create Staff Award Programs that help recognize high achievers in the Bank across all operational areas.

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We conduct Employee Satisfaction Surveys to encourage feedback and dialogue to constantly enhance employee satisfaction level, motivation and loyalty.

Moreover, and to promote the personal and professional growth of our employees, we have developed several programs such as:

Induction program, On The Job training program and On Boarding mentor program.

Internal & External training for capacity building.

Tuition assistance to employees who wish to pursue their academic development.

Internal job postings to create career growth paths and equal opportunities for all.

3 - Our Community:

We are committed to contribute to the well-being of the local communities we serve.

Our main axes in community involvement include both education and health; however we also support arts and culture.

We have successfully engaged the Lebanese public and the Bank’s staff to support non-profit humanitarian organizations active in the medical and social fields: Children’s Cancer Center of Lebanon, Heartbeat, Sesobel and Oum El Nour. The campaign was based on public voting via Facebook for the charity of their choice to distribute fifty five thousand USD worth of donations. Sesobel ranked first with the highest number of votes and won $25,000, Heartbeat the runner up won $15,000, Children’s Cancer Center of Lebanon ranked third with $10,000 and Oum El Nour won $5,000.

We supported education in rural areas in collaboration with Teach for Lebanon. Being a major sponsor of Teach for Lebanon, BLC Bank entices its employees to enlist in the organization’s cause thereby paving the way for education equality, effecting systemic change and driving students to new horizons to carry out volunteer work at schools.

We partnered with the Civil-Military Cooperation (CIMIC) of the French unit of the United Nations Interim Force in Lebanon (UNIFIL), to promote the French language across the French-speaking schools of South Lebanon. Over 50,000 students participated in the contest held in March 2011. Twenty winners were rewarded with a trip to France to explore first-hand the French culture.

We partnered with Fondation Liban Cinema and the Metropolis Association to pay tribute to the Lebanese cinema industry, support young talents and initiatives promoting Lebanese cinematography worldwide.

We have supported the Amicale Notre Dame du Jamhour’s educational initiative to assist underprivileged students in paying their tuition fees.

We sponsored Ghalboun summer festival 2011 reaffirming our commitment to preserve local culture with its unique flair and ability to bring in people from around the country to enjoy an authentic Lebanese ambiance.

We participated in Al Younbouh’s (Rehabilitation Center for People with Special Needs) annual walk.

We contributed to the success of USJ- ESIB’s (Université Saint-Joseph de Beyrouth Faculté d’ingénierie) 23rd rally paper.

On another level, BLC Bank launched the We Initiative, a comprehensive program dedicated to the economic empowerment of women in the Middle East. This initiative intersects with the Boomerang program, as it goes beyond financial services to provide women with non-financial products and services such as trainings, educational workshops, networking events, a dedicated online platform www.we-initiative.com and advisory services allowing them to enhance their professional and personal lives.

4 - Our Environment:

We are committed to integrate respect for the environment into our business and our practices. To pursue this objective, we have undertaken several measures:

We have implemented the BLC Bank corporate environmental policy through the adoption of the 3 R’s approach policy: Reduce, Reuse and Recycle in four fields being energy, water, paper and waste.

We collaborated with the International Finance Corporation (IFC – World Bank Group) to conduct a green retrofit of our headquarters. This resulted in the BLC Bank building becoming the first existing commercial premises to be awarded the ARZ green certification.

We partnered with Jouzour Loubnan, an NGO with a mission to promote environmental awareness, plant in arid regions to increase the woodland area in Lebanon and develop wildlife habitats. Our cooperation with Jouzour Loubnan is through a continuous support in funding and organizing forestation days by volunteers from the Bank. To date, we have contributed to the plantation of 2500 trees and their maintenance for 3 consecutive years.

We sponsored the activities of the Lebanese Mountain Trail Association, to clear, blaze and remove the debris of the trail stretching over 9.8 km in North Lebanon, Bsharre and Zgharta/Ehden. This will allow the association to fulfill its mission to make the LMT an international destination for responsible ecotourism.

We supported DPNA – Development for People and Nature Association – to maintain Bkessine Natural Reserve. The project, aims to preserve Bkessine’s pine forest, the largest in the Middle East, and capitalize on its touristic aspects to create a leisure park. By teaming up with DPNA, BLC Bank will preserve the natural cachet of the forest, boost the ecotourism, and more importantly provide job opportunities.

We sponsored the works at the patriarch Garden in the village of Diman in the North with the aim of making the garden a place open to the public.

We supported Eco-friendly construction at “Built it Green Lebanon”, with the aim of raising awareness and enable the business community to become environmentally friendly in an economical manner.

As a responsible corporate citizen, we aim to deliver value that matters to our customers, create growth opportunities for our employees, contribute to the well-being of the Lebanese communities and integrate respect for the environment into our business, development strategies as well as practices.

Ultimately, we aim to spread the culture of sustainable practices to reach all collaborators, suppliers, clients, business associates and employees’ families. To implement the CSR culture, a CSR committee was designated to manage, access and pursue social & environmental issues within both the Bank and the community.

We hereby present you with our 2011 Annual Report, assuring you of our long term commitment to Corporate Social Responsibility initiatives, hoping this will have a positive and long lasting impact on our environment and society.

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V I S I O N

To be a reference in the financial services industry making complex banking simple and bringing the best to you.

M I S S I O N

Provide a wide range of state-of-the-art, innovative and competitive financial products and services, in a simple and efficient way, leveraging innovation, technology, professionalism and excellence, in order to deliver what matters to our customers, shareholders, employees and community.

C O R E V A L U E S

We do what we say.We do it with integrity.We are performance driven.We promote gender equality.We are responsible corporate citizens.

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AUDITOR’S REPORT 40

Independent Auditors’ Report 42

Consolidated Financial Statements: 44

Consolidated Statement of Financial Position 44

Consolidated Income Statement 46

Consolidated Statement of Comprehensive Income 47

Consolidated Statement of Changes in Equity 48

Consolidated Statement of Cash Flows 50

Notes to the Consolidated Financial Statements 52

OUR NETWORK 160

Branches 162

Subsidiaries 166

Correspondent Banks 168

CHAIRMAN’S LETTER 8

CSR CITIZENS 10

Shareholders’ Structure 12

Board of Directors 14

Management 18

Organization Chart 22

FINANCIAL HIGHLIGHTS 24

Financial Analysis BLC Bank vs Alpha Bank Group 26

T A B L E O F C O N T E NT

9

C H A I R M A N ’ S L E T T E R

BLC Bank continues to harmoniously grow on all fronts. In fact, Retail and Corporate Lending, Shareholder Equity, Profits and Return on equity are all witnessing growth that is noticeably higher than that of the Lebanese Alpha Banking Group. It should also be noted that the private banking activities are more than satisfactory.

On the regional level, we took in charge the management of USB Bank in Cyprus and the operational results became largely positive starting May 2011.This is an impressive achievement in terms of time.

We have therefore succeeded, for the fourth year running, to achieve the ambitious 2011 targets that we set for BLC Bank.

As for 2012, all indications show that the dynamics of BLC Bank will stay the same. We have also strengthened the teams on all levels through new collaborators who have joined us and who were selected based on their expertise and know-how.

We will also witness the start up in operations of our Abu Dhabi representative office and the effective activation of the investment bank that we recently created. We have high hopes of success for both projects.

I will conclude, like last year, by reiterating my heartfelt thanks to all our collaborators and our main shareholder, Fransabank, for their unreserved adherence to our initiatives and to our ambitious objectives.

MAURICE SEHNAOUIChairman General Manager

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S H A R E H O L D E R S ’ S T R U C T U R E

FRANSA INVESTBANK6.25%

HOLDING M. SEHNAOUI

18.44%

FRANSABANK

68.58%

SILVER CAPITAL HOLDING

4.86%

OTHERS

1.87%

USB BANK BLC SERVICESBLC INVEST

95.61% 90.33%99.97%

BLC FINANCE

98.44%

OTHERS1.56%

OTHERS4.39%

OTHERS9.67%

OTHERS0.03%

BLC BANK

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B L C B A N K G R O U P B O A R D O F D I R E C T O R S

B L C B A N K S . A . L .Board Members

Chairman General Manager: Maurice SEHNAOUI

Vice-Chairman: Nadim KASSAR

Members: Adnan KASSAR Adel KASSAR Nabil KASSAR Walid DAOUK Nazem EL KHOURY Walid ZIADEH Raoul NEHME Mansour BTEISH Charles EL HAGE

Secretary to the Board: Michel TUENI

External auditors: Deloitte & Touche Fiduciaire du Moyen Orient

U S B B A N K P . L . C .Board Members

Chairman: Maurice SEHNAOUI

Members: Fransabank S.A.L. Nadim KASSAR Nabil KASSAR Walid DAOUK BLC Bank S.A.L. Raoul NEHME Fransa Invest Bank S.A.L. Tania MOUSSALLEM Yiorgos GALATARIOTIS Philippos PHILI Despo POLYCARPOU Yiorgos STYLIANOU Agis TARAMIDES

Secretary to the Board: Andreas THEODORIDES

External auditors: Ernest & Young Cyprus

B L C F I N A N C E S . A . L .Board Members

Chairman: Shadi KARAM

Members: BLC BANK S.A.L. Holding M. SEHNAOUI S.A.L. Walid DAOUK Walid ZIADEH Youssef SARROUH


External auditors: Deloitte & Touche

B L C S E R V I C E S S . A . L .Board Members

Chairman: Nazem EL KHOURY

Members: BLC BANK S.A.L. Holding M. SEHNAOUI S.A.L. Walid DAOUK Walid ZIADEH Khaled SALMAN



B L C I N V E S T S . A . L .Board Members

Chairman General Manager: Maurice SEHNAOUI

Members: Walid DAOUK Nadim KASSAR Nabil KASSAR Mansour BTEISH Raoul NEHME

Secretary to the Board: Rawi KANAAN


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CHARLES EL HAGE

MANSOUR BTEICHRAOUL NEHME

NAZEM EL KHOURy wALID ZIADEH

ADEL KASSAR

wALID DAOUK

ADNAN KASSAR

NADIM KASSAR

NABIL KASSAR

MAURICE SEHNAOUI

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M A N A G E M E N T

GEORGES TABETADvISOR TO THE CHAIRMAN

JOE BADDOURASSISTANT GENERAL MANAGER CORPORATE BANKING GROUP

TANIA MOUSSALLEMASSISTANT GENERAL MANAGER

STRATEGIC DvPT. & FINANCIAL MGT. GROUP

ELIE AZARADvISOR TO THE GENERAL MANAGER

MAURICE SEHNAOUICHAIRMAN GENERAL MANAGER

RAOUL NEHMEGENERAL MANAGER

yOUSSEF EIDASSISTANT GENERAL MANAGER

RETAIL BANKING GROUP

FOUAD RAHMEGENERAL MANAGER - BLC INvEST

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SOUHEIL yOUNESHUMAN RESOURCES GROUP

ANTOINE HOBEICHESUPPORT GROUP

BASSAM HASSANSTRATEGIC TECHNOLOGY INTELLIGENCE

ALExANDER ZOGHEIBCHIEF INTERNAL AUDITOR

MAyA MARGIEMARKETING GROUP

SENIOR MANAGERS, HEADS OF DEPARTMENT

Naji ECHO, Treasury Department Elizabeth EL-KHAZEN, Administration Department Georges NAMMOUR, Operations Department

DEPUTy HEADS OF GROUP

victoria HABIB, Human Resources Group

MANAGERS, HEADS OF DEPARTMENT

Faysal ABBAS, Credit Analysis DepartmentKhalil ABOU DARWICHE, Recovery DepartmentGisele ABI RACHED, Credit Administration & Reporting DepartmentSandra ANTYPAS, Resources Management DepartmentPierrot ATALLAH, Chief Information OfficerGaby AWAD, Project Management OfficeGeorges BOU NAJEM, Large Entreprises DepartmentJoseph CHAMOUN, Real Estate DepartmentGhosny DAGHER, Special Sector Enterprises DepartmentBenoit EID, Small Business Credit DepartmentCharbel GHANEM, Chief Financial OfficerTarek HAGE, International Corporate Department (Africa Region)Samir KHOURY, Retail Sales DepartmentCarlos LEBBOS, Risk Management DepartmentAntoine MOUANES, Trade Finance DevelopmentJoseph SAAB, Compliance Department Maya TABET, Legal DepartmentClaire WAKED, Consumer Credit DepartmentMaya WAKIM, Organization Department

GEORGES BAZLEGAL & RISK MANAGEMENT GROUP

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ADVISOR TO THE CHAIRMAN

ADVISOR TO THE GENERAL MANAGER

GENERAL MANAGMENT’S OFFICE

O R G A N I Z A T I O N C H A R T

Board of directors

chairman General manaGer

General manaGer

CORPORATEBANKING GROUP

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STRATEGIC TECHNOLOGY INTELLIGENCE

COMPLIANCE DEPARTMENT

SUPPORT GROUP

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RETAIL BANKING GROUP

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F I N A N C I A L H I G H L I G H T SBLC Bank Vs Alpha Banks Group

In line with management’s strategic growth plans, BLC Bank continues to post record financial results exceeding the average growth ratios of the Lebanese Alpha Banking Group.

As at the end of December 2011 consolidated net income reached USD 48.10 million, registering an increase of 6.2%, while assets and deposits increased by 43% and 39%, reaching USD 4.40 billion and USD 3.60 billion respectively.

The Bank’s portfolio of performing loans registered a growth ratio of 120% reaching USD 1,477 million at year end 2011, as a result of increased lending activities in the retail and corporate banking groups, and due to the acquisition of USB Cyprus. This confirms BLC Bank’s active role in the market underscoring its involvement in financing the productive economic sectors.

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FINANCIAL HIGHLIGHTS AND RATIOS

(Audited) 2011 2010 2009 2008 2007

(IN MILLION OF US$)

Total Assets 4,416 3,101 2,593 1,972 1,733

Net Liquid Assets (Incl. Securities) 2,669 1,965 1,781 1,339 1,121

Net Loans (including Acceptance) 1,561 701 486 290 202

Deposits 3,615 2,604 2,274 1,733 1,480

Shareholders' Equity 361 263 228 157 128

Interest Income 233 173 152 130 127

Net Interest Income 84 64 53 44 32

Non Interest Income 49 27 20 10 10

Net Financial Revenues 118 83 69 53 41

Provision for Credit Losses (Less Write Back)

(3.7) 7.7 3.9 8.7 5.0

Provision or Assets Impairments & Oth Cr.Risk (0.1) 0.0 1.2 0.0 2.8

Operating Expenses 69 43 36 32 29

Earning Before Tax 57 53 40 27 14

Net Income 48 45 34 23 15

Dividends to Preferred Shares 2.6 - - - -

Dividends to Common Shareholders 17.7 17.7 15.1 8.7 -

Ratio NII to Average Total Assets 2.23% 2.24% 2.33% 2.36%

Return on Average Assets 1.28% 1.59% 1.52% 1.24% 0.76%

Return on Average Equity 15.40% 18.50% 17.80% 16.10% 14.60%

Solvency Ratio (Basle II) 10.8% 10.3% 11.0% 11.0% 10.7%

Net Primary Liquidity (Excl.Securities) to Deposits

14% 22% 27% 24% 26%

Net Liquid Assets (Incl. Securities) to Deposits

74% 75% 78% 77% 76%

Net Loans to Deposit 43% 27% 21% 17% 14%

Coverage ratio 89.5% 95.8% 93.2% 92.2% 91.4%

Cost to Income 54.3% 49.5% 52.5% 65.1% 84.8%

Growth in Total Assets 42.4% 19.6% 31.5% 13.8%

Growth in Deposits 38.9% 14.5% 31.2% 17.1%

Growth in Loan 122.8% 44.3% 67.5% 43.7%

Growth in Equity 37.3% 15.1% 45.4% 22.4%

Growth in Net Financial Revenues 42.5% 19.2% 31.3% 27.7%

Branches 51 35 34 35 35

Staff Employed 898 628 610 523 490

TOTAL ASSETS’ EVOLUTION

BLC BankAlpha Group

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

2007 2008 2009 2010 2011

3,101

4,416

2,593

1,9721,733

(in USD Millions)

40%

35%

30%

25%

20%

15%

10%

5%

2010

11%

20%

2011

6.8%

43%

2009

22%

31%

2008

14%13%

BLC Bank Growth vs Alpha Group

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LOANS’ EVOLUTION

BLC BankAlpha Group

1600

1200

1000

1400

800

600

400

200

160%

140%

120%

80%

100%

60%

40%

20%

2008

276

2011

1,533

2010

687

2008

28%

44%

2009

73%

16% 13%

2011

123%

26%

2010

44%

2009

476

2007

191

(in USD Millions) BLC Bank Growth vs Alpha Group

TOTAL DEPOSITS’ EVOLUTION

BLC BankAlpha Group

4,000

3,500

3,000

2,500

2,000

1,500

1,000

2007

1,480

40%

35%

30%

25%

20%

15%

10%

2008

1,733

2009

2,274

2011

3,615

2010

2,604

2008

17%

14%

2009

31%

24%

(in USD Millions) BLC Bank Growth vs Alpha Group

2011

39%

7%

2010

15%

12%

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SHAREHOLDERS’ EqUITy

BLC BankAlpha Group

(in USD Millions)

400

350

300

250

200

150

100

50

2011

361

2010

263

2009

228

2008

157

2007

128


2009

45%

24%

2008

15%

22%

2010

15%14%

2011

37%

-2%

80%

70%

60%

40%

50%

30%

20%

10%

NET INCOME

BLC BankAlpha Group

45

30

25

35

40

20

15

10

5

2007

14.9

2008

23.0

2011

48.1

2010

45.3

2009

34.2

(in USD Millions)

90%

80%

70%

60%

40%

50%

30%

20%

10%

2008

54%

32%

2009

49%

19%

1.2%

2011

6.2%

24%

2010

32%


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RETURN ON AVERAGE ASSETS (ROAA)

BLC BankAlpha Group

2.00%

1.50%

1.00%

0.50%

2009

1.16%

1.52%

2010

1.20%

1.59%

2011

1.16%1.28%

2008

1.18%1.24%

2007

1.04%

0.76%

BLC Bank vs Alpha Group

RETURN ON AVERAGE EqUITy (ROAE)

BLC BankAlpha Group

BLC Bank vs Alpha Group

20.0%

15.0%

10.0%

5.0%

2007

14.6%

11.9%

2008

16.1%13.9%

2009

17.8%

13.9%

2010

18.5%

14.4%

2011

15.4%

13.1%

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BALANCE SHEET STRUCTURE

(Audited) 2011 % total 2010 % total 2009 % total 2008 % total 2007 % total

(IN MILLION OF US$)

Cash & Banks 527 12% 580 19% 624 24% 421 21% 381 22%

Loans (Net of Provisions) with Acceptance 1,561 35% 701 23% 486 19% 290 15% 202 12%

Securities 2,142 49% 1,684 54% 1,369 53% 1,179 60% 1,071 62%

Other assets 185 4% 136 4% 114 4% 82 4% 79 5%

Total assets 4,416 100% 3,101 100% 2,593 100% 1,972 100% 1,733 100%

Borrowings from banks 332 8% 162 5% 30 1% 32 2% 90 5%

Customers deposits 3,615 82% 2,604 84% 2,274 88% 1,733 88% 1,480 85%

Other liabilities 107 2% 73 2% 60 2% 49 3% 34 2%

Total liabilities 4,055 92% 2,838 92% 2,364 91% 1,814 92% 1,604 93%

Total equity 361 8% 263 8% 228 9% 157 8% 128 7%

Total liabilities and equity 4,416 100% 3,101 100% 2,593 100% 1,972 100% 1,733 100%

NET INTEREST INCOME STRUCTURE

(Audited) 2011 % total 2010 % total 2009 % total 2008 % total 2007 % total

(IN MILLION OF US$)

Interest income:

Banks 4,195 2% 4,071 2% 4,682 3% 9,094 7% 15,260 12%

Investment securities 122,617 53% 119,711 69% 111,684 74% 100,447 77% 94,634 75%

loans 106,136 45% 48,748 28% 35,382 23% 20,629 16% 16,970 13%

Others 444 0% 93 0% 85 0% 115 0% 73 0%

Total interest income 233,391 100% 172,624 100% 151,832 100% 130,286 100% 126,937 100%

Interest expenses:

Banks 5,095 3% 2,288 2% 132 0% 756 1% 2,133 2%

Deposits 143,243 96% 106,237 98% 98,249 100% 83,122 96% 88,659 94%

Other 1,227 1% 295 0% 329 0% 2,756 3% 3,914 4%

Total interest expense 149,565 100% 108,820 100% 98,709 100% 86,633 100% 94,706 100%

Net interest Income 83,827 63,804 53,123 43,653 32,231

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CUSTOMERS’ LOANS AND DEPOSITS

FCyLBP

Retail and Small BusinessCorporate

2011

62.9%

37.1%

2011

47.0%

53.0%

Deposits Dollarization Loans by Type

BLC GROwTH VS. MARKET GROwTH (STAND ALONE BASIS)

BLC BankMartket

30%

25%

20%

15%

10%

5%

2007 2008 2009 2010 2011

14.6%13.8%

15.5%

9%11.9%

22.4%22.3%

28.5%

1.6%

10.7%

Total Assets growth vs. Market

Customers' deposits growth vs. Market

30%

25%

35%

20%

15%

10%

5%

2007 2008 2009 2010 2011

15.6%17.1%

12.9%

8.4%

12.2%14.5%

23.1%

31.2%

1.6%

10.2%

Loans growth vs. Market

60%

50%

70%

80%

40%

30%

20%

10%

2007 2008 2009 2010 2011

18.6%

44.5%

50.6%

12.9%

25%

44.3%

15.2%

72.5%

0.2%

15.9%

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I N D E P E N D E N T A U D I T O R S ’ R E P O R T

To the ShareholdersBLC Bank S.A.L.Beirut, Lebanon

We have audited the accompanying consolidated financial statements of BLC BANK S.A.L. (the “Bank”) and its Subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at December 31, 2011, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the financial statements, within the framework of local banking laws. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of BLC Bank as of December 31, 2011, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Beirut, LebanonFebruary 27, 2012

DFK Fiduciaire du Moyen Orient Deloitte & Touche

45

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

December 31,

2011 2010

ASSETS NOTES LBP’000

Cash and Central Banks 6 593,196,508 558,876,097

Deposits with banks and financial institutions 7 194,948,707 308,816,741

Trading assets 8 - 16,263,637

Loan to a bank 9 7,058,077 7,058,586

Loans and advances to customers 10 2,310,489,697 1,036,366,717

Investment securities 11 3,228,724,937 2,522,077,807

Investment properties 13, 35 17,595,768 -

Customers’ liability under acceptances 12 43,462,735 20,006,573

Assets acquired in satisfaction of loans 13 91,292,344 96,237,803

Property and equipment 14 76,301,029 56,663,057

Intangible assets 15 2,547,142 2,813,616

Deferred charges on business acquisition 16 32,172,956 37,648,050

Goodwill 17 40,683,630 -

Other assets 18 18,390,529 11,961,950

Total Assets 6,656,864,059 4,674,790,634

FINANCIAL INSTRUMENTS wITH OFF-BALANCE SHEET RISKS: 39

Letters of guarantee and standby letters of credit 199,956,457 121,449,795

Letters of credit 44,227,565 70,565,887

Forward exchange contracts 69,121,081 41,658,360

Fiduciary Accounts 40 19,297,995 15,862,670

The accompanying notes 1 to 48 form an integral part of the consolidated financial statements

December 31,

2011 2010

EqUITy NOTES LBP’000

Capital 25 152,700,000 152,700,000

Preferred shares 26 143,212,501 -

Reserves 27 88,402,460 63,656,920

Regulatory reserve for assets acquired in satisfaction of loans 27 14,028,871 13,078,756

Retained earnings 66,932,294 26,082,782

Cumulative change in fair value of investment securities 11 3,085,014 72,351,780

Cumulative currency translation adjustments 51,383 -

Profit for the year 72,498,756 68,270,880

Total equity attributable to equity holders of the Bank 540,911,279 396,141,118

Non-controlling interest 3,194,983 137,205

Total equity 544,106,262 396,278,323

Total Liabilities and Equity 6,656,864,059 4,674,790,634

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (ctd.)

December 31,

2011 2010

LIABILITIES NOTES LBP’000

Deposits from banks 19 8,011,923 46,977,291

Customers’ accounts designated at fair value through profit or loss 20 - 2,388,932

Customers’ accounts at amortized cost 20 5,449,981,971 3,922,525,311

Liability under acceptances 12 43,462,735 20,006,573

Other borrowings 21 493,171,977 196,580,561

Subordinated bonds 22 19,296,044 -

Other liabilities 23 62,733,792 65,838,785

Provisions 24 36,099,355 24,194,858

Total liabilities 6,112,757,797 4,278,512,311

47

CONSOLIDATED INCOME STATEMENT

December 31,

2011 2010

NOTES LBP’000

Interest income 29 351,837,580 260,230,499

Interest expense 30 (225,468,783) (164,046,026)

Net interest income 126,368,797 96,184,473

Fee and commission income 31 32,244,791 20,755,141

Fee and commission expense 32 (6,703,661) (3,475,114)

Net fee and commission income 25,541,130 17,280,027

Net interest and other gain/(loss) on trading portfolio 33 - (15,456)

Net interest and other gain/(loss) on investment securities at fair value through profit or loss 34 20,380,828 -

Other operating income 35 5,467,492 11,287,889

Net financial revenues 177,758,247 124,736,933

Allowance for impairment of loans and advances 10 (22,018,265) (1,929,964)

Write-back of impairment loss on loans and advances 10 15,830,872 11,905,148

Recovery of loans (net) 8,216 2,162

Write-back of discount on purchased loan portfolio 10 613,046 1,692,748

Net financial revenues after net impairment loss/write-back 172,192,116 136,407,027

Realized income on business acquisition 16 - 7,728,744

Net gain on disposal of property and equipment and properties acquired in satisfaction of loans 13, 14 20,212,262 3,956,410

Other non-operating income 1,769,595 -

Provision (net of write-back) 24 (180,900) 67,838

Staff costs 36 (67,703,384) (41,965,014)

General and administrative expenses 37 (36,037,496) (22,459,161)

Depreciation and amortization 14,15 (4,687,491) (3,155,205)

Profit before income tax 85,564,702 80,580,639

Income tax expense 23 (13,070,223) (12,293,482)

Profit for the year 72,494,479 68,287,157

Attributable to:

Equity holders of the Bank 72,498,756 68,270,880

Non-controlling interests (4,277) 16,277

72,494,479 68,287,157

Earnings per share:

Basic and diluted earnings per share (in LBP) 38 LBP 474.7 LBP 447.2

CONSOLIDATED STATEMENT OF COMPREHENSIvE INCOME

December 31,

2011 2010

NOTES LBP’000

PROFIT FOR THE yEAR 72,494,479 68,287,157

Other comprehensive income:

Net change in fair value of available-for-sale investment securities - 14,917,563

Net change in fair value of investments at fair value through other comprehensive income 35 720,820 -

Fair value of available-for-sale securities recycled to profit and loss - (7,122,945)

Currency translation adjustment 53,742 -

Deferred tax liability 23 (544,414) (1,192,915)

230,148 6,601,703

Total comprehensive income 72,724,627 74,888,860

Attributable to:

Equity holders of the Bank 72,726,545 74,872,583

Non-controlling interests (1,918) 16,277

72,724,627 74,888,860



49

CONSOLIDATED STATEMENT OF CHANGES IN EqUITY

Attributable to Equity Holders of the Bank

CapitalPreferred Shares

LegalReserve

FreeReserve

Reservefor General

BankingRisks

RegulatoryReserve for

Assets Acquired

in Satisfactionof Loans

CumulativeCurrency

Translation Adjustment

CumulativeChange in

Fair Value ofInvestmentSecurities

RetainedEarnings

Profit for theyear Total

Non-Controlling

InterestTotal

Equity

LBP’000

Balance - January 1, 2010 152,700,000 - 7,585,667 27,177,805 8,982,136 10,858,632 - 65,750,077 19,610,911 51,500,286 344,165,514 229,505 344,395,019

Allocation of 2009 profit - - 5,254,545 8,150,073 6,030,531 2,648,939 - - 29,416,198 (51,500,286) - - -

Dividends paid - - - - - - - - (22,853,691) - (22,853,691) (108,577) (22,962,268)

Transfer to legal reserve - - 47,348 - - - - - (47,348) - - - -

Transfer to free reserves - - - 428,815 - (428,815) - - - - - - -

Deferred tax on future dividend distribution - - - - - - - - (43,288) - (43,288) - (43,288)

Total comprehensive income for the year 2010 - - - - - - - 6,601,703 - 68,270,880 74,872,583 16,277 74,888,860

Balance - December 31, 2010 152,700,000 - 12,887,560 35,756,693 15,012,667 13,078,756 - 72,351,780 26,082,782 68,270,880 396,141,118 137,205 396,278,323

Effect of IFRS9 adoption (Note 5)

- - - - - - - (69,443,172) 24,948,348 - (44,494,824) - (44,494,824)

Balance January 1, 2011 (Restated) 152,700,000 - 12,887,560 35,756,693 15,012,667 13,078,756 - 2,908,608 51,031,130 68,270,880 351,646,294 137,205 351,783,499

Allocation of 2010 profit - - 6,955,868 10,767,661 5,356,040 2,616,086 - - 42,575,225 (68,270,880) - - -

Dividends paid (Note 28) - - - - - - - - (26,746,854) - (26,746,854) (26,079) (26,772,933)

Transfer to free reserves - - - 1,665,971 - (1,665,971) - - - - - - -

Issuance of preferred shares - 143,212,501 - - - - - - - - 143,212,501 - 143,212,501

Difference of exchange - - - - - - - - 9,958 - 9,958 - 9,958

Non-controlling interest of the acquired subsidiary - - - - - - - - - - - 3,085,775 3,085,775

Deferred tax on future dividend distribution - - - - - - - - 62,835 - 62,835 - 62,835

Total comprehensive income for the year 2011 - - - - - - 51,383 176,406 - 72,498,756 72,726,545 (1,918) 72,724,627

Balance - December 31, 2011 152,700,000 143,212,501 19,843,428 48,190,325 20,368,707 14,028,871 51,383 3,085,014 66,932,294 72,498,756 540,911,279 3,194,983 544,106,262



51

CONSOLIDATED STATEMENT OF CASH FLOWS

December 31,

2011 2010

Notes LBP’000

Cash flows from operating activities:

Net profit for the year 72,494,479 68,287,157

Adjustments for:

Provision/(write back) for bad debts (net) and write-back of discount on loan portfolio 10 5,574,347 (11,667,932)

Recovery of loans written-off (8,216) (2,162)

Depreciation and amortization 14,15 4,687,491 3,155,206

Amortization of deferred charges on business acquisition 16 8,333,131 4,459,364

Realized income on business acquisition 16 - (7,728,744)

Impairment of property and equipment 14 - 65,308

Write-back provision no longer required (1,246,825) -

Change in fair value for investment properties (190,805) -

Provisions/(write back), (net) 24 180,900 (16,569)

Provision for end-of-service indemnities (net) 24 3,824,197 965,292

Provision/(write-back) for loss on foreign currency position 103,557 (20,754)

Unrealized loss on investment securities at fair value through profit or loss 34 6,719,508 1,299,696

Income tax expense 13,070,223 12,293,482

Gain on sale of property and equipment (1,887,545) (507,818)

Gain on disposal of property acquired in satisfaction of loans (18,324,718) (3,448,592)

Dividend income (1,718,822) (1,465,433)

Interest expense 225,468,783 164,046,026

Interest income (including interest on investment securities at FvTPL) (371,854,082) (261,095,694)

(54,774,397) (31,382,167)

Net decrease in trading portfolio - 1,747,042

Net increase in loans and advances to customers 41 (634,931,260) (331,313,763)

Net decrease in available-for-sale investing securities 41 - (288,719,745)

Net decrease in held-to-maturity investing securities 41 - (177,384,170)

Investments at fair value through profit or loss 41 230,919,592 -

Investments at amortized cost 41 (676,701,012) -

Net increase in customers' deposits 640,475,539 490,837,465

Net decrease in compulsory deposits with Central Bank 6 33,512,421 57,091,134

Net decrease in term deposits with Central Bank - 25,250,625

Net (decrease)/increase in deposits from banks (38,919,591) 13,030,314

Net increase in other assets 41 (3,387,033) (3,575,261)Net (decrease)/increase in other liabilities 41 (1,227,985) 11,324,180

Proceeds from disposal of property acquired in satisfaction of loans 41 28,595,807 8,433,627

Settlements made from provisions 24 (849,043) (1,173,855)

(477,286,962) (225,834,574)

CONSOLIDATED STATEMENT OF CASH FLOWS

December 31,

2011 2010

Notes LBP’000

Income tax paid (13,580,696) (9,462,998)

Dividends received 1,718,822 1,465,433

Interest paid (222,538,577) (157,756,614)

Interest received 363,665,953 255,245,089

Net cash used in operating activities: (348,021,460) (136,343,664)

Cash flows from investing activities:

Amounts paid in business acquisition 17 (85,568,684) -

Increase in investment properties (6,298,000) -

Amounts and costs paid in business acquisition 16 (2,166,520) (6,065,313)

Proceeds from disposal of property and equipment 2,143,103 807,395

Acquisition of property and equipment 14, 41 (11,337,317) (1,784,854)

Acquisition of intangible assets (831,427) (1,065,400)

Net cash used in investing activities: (104,058,845) (8,108,172)

Cash flows from financing activities:

Dividends paid 28 (26,746,854) (22,853,691)

Dividends paid to non-controlling interests (26,079) (108,577)

Issuance of preferred shares 82,912,501 -

Other 63,700 -

Increase in loan to a bank - (7,000,000)

Net change in subordinated bonds (542,766) -

Net increase in other borrowings 21 237,576,672 184,439,591

Net cash generated from financing activities: 293,237,174 154,477,323

Net (decrease)/increase in cash and cash equivalents (158,843,131) 10,025,487

Cash and cash equivalent beginning of year 760,195,701 750,170,214

Cash and cash equivalents acquired from USB Bank PLC 99,035,098 -

Cash and cash equivalents end of year 41 700,387,668 760,195,701



53

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T Syear Ended December 31, 2011

1 - FORMATION AND ACTIVITIES OF THE BANK

BLC Bank S.A.L., (the “Bank”), is a Lebanese joint stock company registered under No. 1952 in the Lebanese Commercial Register and is listed under No. 11 on the Lebanese Banks’ List. The principal activities of the Bank consist of a wide range of commercial banking activities carried on through thirty six branches in Lebanon including Head Office.

During 2011, the Bank became a 95.61% majority owner of the share capital of USB Bank PLC (Cyprus) and gained control over the said bank (Refer to Note 17). The Bank’s previous holding in USB Bank PLC acquired in 2010 was 9.89%.

The consolidated financial statements of the Bank comprise the financial statements of the Bank and those of its subsidiaries (the “Group”).

The Bank’s headquarters are located in Beirut, Lebanon.

55

2.1 Early adopted Standard during the current period

In the current year the Bank has applied IFRS 9 Financial Instruments (as issued in November 2009 and revised in October 2010) and the related consequential amendments in advance of their effective dates. The date of initial application is of January 1, 2011. Changes in accounting policies resulting from the adoption of IFRS 9 have been applied on a retrospective basis without restatement of prior periods as permitted by the Standard.

Financial assets

IFRS 9 introduces new classification and measurement requirements for financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement. Specifically IFRS 9 requires all financial assets to be classified and subsequently measured at either amortized cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. As required by IFRS 9, debt instruments are measured at amortized cost only if the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. If either of the two criteria is not met, the debt instruments are classified as at fair value through profit or loss (FVTPL).

However, the Group may choose at initial recognition to designate a debt instrument that meets the amortized cost criteria as at FvTPL if doing so eliminates or significantly reduces an accounting mismatch.

Debt instruments that are subsequently measured at amortized cost are subject to impairment.

Investments in equity instruments are classified and measured as at FvTPL except when the equity investment is not held for trading and is designated by

the Group as at fair value through other comprehensive income (FvTOCI). If the equity investment is designated as at FvTOCI, all gains and losses, except for dividend income that is generally recognized in profit or loss in accordance with IAS 18 Revenue, are recognized in other comprehensive income and are not subsequently reclassified to profit or loss.

For debt instruments not designated at fair value through profit or loss under the fair value option, reclassification is required between fair value through profit or loss and amortized cost, or vice versa, if the Group’s business model objective for its financial assets changes so that its previous measurement basis no longer applies.

IFRS 9 requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated. Instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortized cost or fair value.

As at January 1, 2011, the directors have reviewed and assessed the Group’s existing financial assets. The impact resulting from the initial application of IFRS 9 on the Group’s financial assets is detailed under Note 5. Differences between the carrying amounts of financial assets and financial liabilities from the adoption of IFRS 9 are recognized in opening retained earnings balance.

Financial liabilities

IFRS 9 also contains requirements for the classification and measurement of financial liabilities. One major change in the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability.

Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the

2 - ADOPTION OF NEw AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in the fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

2.2 Standards and Interpretations effective for the current period

The following new and revised standards and interpretations applicable to the Group have been applied in the current year with no material impact on the disclosures and amounts reported for the current and prior years, but may affect the accounting for future transactions or arrangements:

Amendments to IAS 24 Related Party Disclosures (as revised in 2009) modify the definition of a related party and simplify disclosures for government-related entities. The Bank and its subsidiary are not government-related entities and the application of the revised definition of related party set out in IAS 24 (as revised in 2009) in the current year has not resulted in the identification of related parties that were not identified as related parties under the previous Standard.

Amendments to IAS 32 Classification of Rights Issues address the classification of certain rights issues denominated in a foreign currency as either equity instruments or as financial liabilities. The application of the amendments has had no effect on the amounts reported in the current and prior years because the Group has not issued instruments of this nature.

Amendments to IFRIC 14 - Prepayments of a Minimum Funding Requirement. The amendments correct an unintended consequence of IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The application of the amendments has had no effect on the Group’s financial statements.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. In particular equity instruments issued under such arrangements are measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued are recognized in profit or loss. The application of IFRIC 19 has had no effect on the amounts reported in the current and prior years because the Group has not entered into any transactions of this nature.

Improvements to IFRSs issued in 2010 - Amendments to:- IFRS 1;- IFRS 3 (2008);- IFRS 7;- IAS 1;- IAS 27 (2008);- IAS34;- IFRIC 13.The application of these improvements to IFRSs issued in 2010 has not had any material effect on amounts reported in the consolidated financial statements.

2.3 Standards and Interpretations in issue but not yet effective

The Group has not applied the following new standards, amendments and interpretations that have been issued but not yet effective and which are applicable to the Group’s operations:

Amendments to IFRS 7 Disclosures – Transfers of Financial Assets increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures of transactions when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period. Currently, the Group has not entered into such transactions. Effective for Annual Periods Beginning on or After July 1, 2011.

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

57

IFRS 10 Consolidated Financial Statements* replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements, and SIC 12 Consolidation – Special Purpose Entities. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee and includes a new definition of control. IFRS 10 requires retrospective application subject to certain transitional provisions providing an alternative treatment in certain circumstances. IAS 27 Separate Financial Statements* and IAS 28 Investments in Associates* have been amended for the issuance of IFRS 10. Effective for Annual Periods Beginning on or After January 1, 2013.

IFRS 11 Joint Arrangements* replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non monetary Contributions by Venturers. IFRS 11 establishes two types of joint arrangements: Joint operations and joint ventures. The two types of joint arrangements are distinguished by the rights and obligations of those parties to the joint arrangement. In addition, joint ventures under IFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 can be accounted for using the equity method of accounting or proportionate. IAS 28 Investments in Associates has been amended for the issuance of IFRS 11. Effective for Annual Periods Beginning on or After January 1, 2013.

IFRS 12 Disclosure of Interests in Other Entities* is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than those in the current standards. Effective for Annual Periods Beginning on or After January 1, 2013.

IFRS 13 Fair Value Measurement defines fair value, establishes a single framework for measuring fair value, and requires disclosures about fair value measurement. The scope of IFRS 13 is broad and applies to both financial and non-financial items for which other IFRSs require or permit fair value measurement and disclosures about fair value measurements, except

in specified circumstances. In general, the disclosure requirements in IFRS 13 are more extensive than those required in the current standards. Effective for Annual Periods Beginning on or After January 1, 2013.

Amendments to IAS 1 – Presentation of Other Comprehensive Income. The amendments retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate statements. However, items of other comprehensive income are required to be grouped into those that will and will not subsequently be reclassified to profit or loss with tax on items of other comprehensive income required to be allocated on the same basis. Effective for Annual Periods Beginning on or After July 1, 2012.

Amendments to IAS 12 Income Taxes provide an exception to the general principles of IAS 12 for investment property measured using the fair value model in IAS 40 Investment Property by the introduction of a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. Effective for Annual Periods Beginning on or After January 1, 2012.

Amendments to IAS 19 Employee Benefits eliminate the “corridor approach” and therefore require an entity to recognize changes in defined benefit plan obligations and plan assets when they occur. Effective for Annual Periods Beginning on or After January 1, 2013.

Amendments to IFRS 7 Financial Instruments: Disclosures enhancing disclosures about offsetting of financial assets and liabilities. Effective for Annual Periods Beginning on or After January 1, 2013.

Amendments to IAS 32 Financial Instruments: Presentation relating to application guidance on the offsetting of financial assets and financial liabilities. Effective for Annual Periods Beginning on or After January 1, 2013.

* In May 2011, a package of five Standards on consolidation, joint arrangements, associates and disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (as revised in 2011) and IAS 28 (as revised in 2011). These five standards are effective for

annual periods beginning on or after 1 January 2013. Earlier application is permitted provided that all of these five standards are applied early at the same time.

The Directors anticipate that the adoption of the above Standards and Interpretation will have no material impact on the financial statements of the Group in the period of initial application, except for IFRS 13 which may affect the amounts reported in the financial statements and result in more extensive disclosures in the financial statements.

.3 - SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

Basis of PreparationThe consolidated financial statements have been prepared on the historical cost basis except for the following:

- Assets and liabilities held for trading;

- Financial instruments designated at fair value through profit or loss;

- Investments in equities;

- Other financial assets not held in a business model whose objective is to hold assets to collect contractual cash flows or whose contractual terms do not give rise solely to payments of principal and interest (effective January 1, 2011);

- Available-for-sale financial assets (applicable prior to January 1, 2011);

- Derivative financial instruments measured at fair value.

The principal accounting policies are set out below:

A. Basis of Consolidation

The consolidated financial statements of BLC Bank incorporate the financial statements of the Bank and enterprises controlled by the Bank (its subsidiaries). Control is achieved when, among other things, the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The consolidated subsidiaries consist of the following:

Percentage of Ownership

December 31,

2011 2010Country of

IncorporationBusiness Activity

NAME OF SUBSIDIARy % %

BLC Finance S.A.L. 98.44 98.44 Lebanon Financial Institution

BLC Services S.A.L. 90.33 90.33 Lebanon Insurance Brokerage

USB Bank PLC 95.61 9.89 Lebanon Commercial banking


59

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with those used by the other entities of the Group.

All intra-group transactions, balances, income and expenses (except for foreign currency transaction gains or loss) are eliminated on consolidation. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.

Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost.

B. Business Combination

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which

is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.

Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in profit or loss.

C. Goodwill

Goodwill arising on an acquisition of a business is carried at cost. Refer to Note 3B for the measurement of goodwill at initial recognition. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses, if any.

D. Foreign Currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign currency risks, and except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future, which are recognized in other comprehensive income, and presented in the translation reserve in equity. These are recognized in profit or loss on disposal of the net investment.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Lebanese Pound using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of.

In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed

to non-controlling interests and are not recognized in profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in equity.

E. Recognition and Derecognition of Financial assets and Liabilities

The Group initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities are initially recognized on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.


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On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.

Effective January 1, 2011, upon derecognition of a financial asset that is classified as fair value through other comprehensive income, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is reclassified to retained earnings.

Debt securities exchanged against securities with longer maturities with similar risks, and issued by the same issuer, are not derecognized because they do not meet the conditions for derecognition. Premiums and discounts derived from the exchange of said securities are deferred to be amortized as a yield enhancement on a time proportionate basis, over the period of the extended maturities.

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

When the Group enters into transactions whereby it transfers assets recognized on its statement of financial position and retains all risks and rewards of the transferred assets, then the transferred assets are not derecognized, for example, securities lending and repurchase transactions.

F. Classification of Financial Assets

Policy Applicable effective January 1, 2011 (IFRS 9):

All recognized financial assets are measured in their entirety at either amortized cost or fair value, depending on their classification.

Debt Instruments:

Non-derivative debt instruments that meet the following two conditions are subsequently measured at amortized cost using the effective interest method,

less impairment loss (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):

They are held within a business model whose objective is to hold the financial assets in order to collect the contractual cash flows, rather than to sell the instrument prior to its contractual maturity to realize its fair value changes, and

The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments which do not meet both of these conditions are measured at fair value through profit or loss (“FvTPL”).

Even if a debt instrument meets the two amortized cost criteria above, it may be designated as at FvTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

Equity Instruments:

Investments in equity instruments are classified as at FvTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (“FvTOCI”) on initial recognition (see below).

Financial assets at FvTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in profit or loss.

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at fair value through other comprehensive income (“FvTOCI”). Investments in equity instruments at FvTOCI are measured at fair value. Gains and losses on such equity instruments are recognized in other comprehensive income, accumulated in equity and are never reclassified to profit or loss. Only dividend

income is recognized in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it is recognized in other comprehensive income. Cumulative gains and losses recognized in other comprehensive income are transferred to retained earnings on disposal of an investment.

Designation at FvTOCI is not permitted if the equity investment is held for trading.

A financial asset is held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

Reclassification:

Financial assets are reclassified between FvTPL and amortized cost or vice versa, if and only if, the Group’s business model objective for its financial assets changes so its previous model assessment would no longer apply. When reclassification is appropriate, it is done prospectively from the reclassification date.

Reclassification is not allowed where:

the ‘other comprehensive income’ option has been exercised for a financial asset, or

the fair value option has been exercised in any circumstance for a financial instrument.

Policy Applicable prior to January 1, 2011 (IAS 39):

Subsequent to initial recognition, investment securities are accounted for depending on their classification as either: held-to-maturity, loans and receivables, available-for-sale, or fair value through profit or loss.

Held-to-Maturity Investment Securities:

Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale.

Held-to-maturity investments are carried at amortized cost using the effective interest method.

Loans and Receivables Investment Securities:

Loans and receivables investment securities are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the ability to hold to maturity.

Loans and receivables investment securities are carried at amortized cost using the effective interest method.

Available-for-Sale Investment Securities:

Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be readily measured are carried at cost. All other available-for-sale investments are carried at fair value and unrealized gains or losses are included in other comprehensive income.

The change in fair value on available-for-sale debt securities reclassified to held-to-maturity is segregated from the change in fair value of available-for-sale debt securities under equity and is amortized over the remaining term to maturity of the debt security as a yield adjustment.

Designation at Fair Value through Profit and Loss:

The Group designates financial assets and liabilities at fair value through profit or loss when either:

The assets or liabilities are managed, evaluated and reported internally on a fair value basis; or

The designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or


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The asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract.

G. Financial Liabilities and Equity Instruments

Classification as debt or equity:

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Group’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue, or cancellation of the Group’s own equity instruments.

The component parts of compound instruments (convertible notes) issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.

Financial Liabilities:

Financial Liabilities that are not held-for-trading and are not designated as at FvTPL are subsequently measured at amortized cost using the effective interest method.

Financial liabilities are classified as at FvTPL when the financial liability is either held for trading or it is designated as at FvTPL.

A financial liability other than a financial liability held for trading may be designated as at FvTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

it forms part of a contract containing one or more embedded derivatives, and the entire combined contract is designated as at FvTPL in accordance with IFRS 9.

H. Offsetting

Financial assets and liabilities are set-off and the net amount is presented in the statement of financial position when, and only when, the Group has a legal right to set-off the amounts or intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

I. Fair Value Measurement of Financial Instruments

Fair value is the amount agreed to exchange an asset or to settle a liability between a willing buyer and a willing seller in an arm’s length transaction.

When published price quotations exist, the Group measures the fair value of a financial instrument that is traded in an active market using quoted prices for that instrument. A financial instrument is regarded as quoted in active market if quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If the market for a financial instrument is not active, the Group establishes fair value by using valuation techniques. valuation techniques include observable

market data about the market conditions and other factors that are likely to affect the instrument’s fair value. The fair value of a financial instrument is based on one or more factors such as the time value of money and the credit risk of the instrument and adjusted for any other factors such as liquidity risk.

J. Impairment of Financial Assets

Effective January 1, 2011 financial assets carried at amortized cost; and prior to January 1, 2011 financial assets other than those carried at fair value through profit and loss, are assessed for indicators of impairment at the reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the asset, a loss event has occurred which has an impact on the estimated future cash flows of the financial asset.

Objective evidence that an impairment loss related to financial assets has been incurred can include information about the debtors’ or issuers’ liquidity, solvency and business and financial risk exposures and levels of and trends in delinquencies for similar financial assets, taking into account the fair value of collateral and guarantees.

The Group considers evidence of impairment for assets measured at amortized cost at both specific asset and collective level.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial assets and the corresponding estimated recoverable amounts. Losses are recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortized cost would have been, had the impairment not been recognized.

For investments in equity securities, a significant or prolonged decline in fair value below cost is objective evidence of impairment.

Prior to January 1, 2011: For available-for-sale investment securities, the cumulative losses previously recorded in other comprehensive income and accumulated in equity were recognized in profit or loss in case the impairment losses are substantiated by a prolonged decline in fair value of the investment securities. Any increase in the fair value of available-for-sale equity securities, subsequent to an impairment loss, was not recognized in profit or loss. Any increase in the fair value of available-for-sale debt securities, subsequent to an impairment loss, was recognized in profit or loss.

K. Derivative Financial Instruments

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Embedded Derivatives

Derivatives embedded in other financial instruments or other host contracts with embedded derivatives are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contract:

is not measured at fair value with changes in fair value recognized in profit or loss;

is not an asset within the scope of IFRS 9 (Policy effective January 1, 2011).

Hedge Accounting

The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.


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At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Fair Value Hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the income statement relating to the hedged item.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.

Cash Flow Hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the income statement as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously

recognized in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

L. Loans and Advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and advances are disclosed at amortized cost net of unearned interest and after provision for credit losses. Non-performing loans and advances to customers are stated net of unrealized interest and provision for credit losses because of doubts and the probability of non-collection of principal and/or interest.

M. Financial Guarantees

Financial guarantees contracts are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. These contracts can have various judicial forms (guarantees, letters of credit, and credit-insurance contracts).

Financial guarantee liabilities are initially measured at their fair value, and subsequently carried at the higher of this amortized amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are included within other liabilities.

N. Property and Equipment

Property and equipment except for buildings acquired prior to 1999 are stated at historical cost, less accumulated depreciation and impairment loss, if any. Buildings acquired prior to 1999 are stated at their revalued amounts, based on market prices prevailing during 1999 less accumulated depreciation and impairment loss, if any.

Depreciation is recognized so as to write off the cost or valuation of property and equipment (other than advance payments on capital expenditures) over their useful lives, using the straight-line method as follows:

%

Buildings 2 - 4

Office improvements and installations 20

Furniture, equipment and machines 8 - 20

Computer equipment 20 - 30

vehicles 10 - 20

The estimated useful lives and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

O. Intangible Assets

Intangible assets other than goodwill and consisting of computer software and key money are amortized on a straight-line basis at the rate of 20% and 15% respectively. Intangible assets are subject to impairment testing.

P. Assets Acquired In Satisfaction Of Loans

Policy applicable to the Lebanese Group entities:

Real estate properties acquired through the enforcement of collateral over loans and advances are measured at cost less any accumulated impairment


losses. The acquisition of such assets is regulated by the local banking authorities who require the liquidation of these assets within 2 years from acquisition. In case of default of liquidation the regulatory authorities require an appropriation of a special reserve from the yearly profits and accumulated in equity.

Q. Investment Properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value, as at the balance sheet date. Gain or losses arising from changes in the fair values of investment properties are included in the income statement. valuations are carried out by independent qualified valuers on the basis of current market values.

The Group’s Cypriot entity acquires in its normal course of business properties in satisfaction of debts. These properties are directly held by the Group or by special purpose entities for the sole purpose of managing these properties. To reflect the substance of transactions, these are classified as investment properties and are consolidated without the entities being explicitly disclosed as subsidiaries.

R. Impairment of Tangible and Intangible Assets (Other than Goodwill)

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An

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impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

The fair value of the Group’s owned properties and properties acquired in satisfaction of loans, is the estimated market value, as determined by real estate appraisers on the basis of market compatibility by comparing with similar transactions in the same geographical area and on the basis of the expected value of a current sale between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale after adjustment of an illiquidity factor and market constraints.

S. Deferred Charges on Business Acquisition

Deferred charges on business acquisition are stated at cost less accumulated amortization. Such deferred charges are amortized over the period of related benefits deriving from the net return of the invested funds borrowed against the cost of business acquisitions of problematic banks, where applicable.

T. Provision for Employees’ End-of-Service Indemnity

Policy applicable to the Lebanese Group entities:

The provision for staff termination indemnities is based on the liability that would arise if the employment of all the staff were voluntary terminated at the reporting date. This provision is calculated in accordance with the directives of the Lebanese Social Security Fund and Labor laws based on the number of years of

service multiplied by the monthly average of the last 12 months’ remunerations and less contributions paid to the Lebanese Social Security National Fund and interest accrued by the Fund.

U. Staff Retirement Benefits

Policy applicable to the Cypriot Group entity:

The cost of defined benefit pension plans for the non-resident subsidiary is determined using actuarial valuations. The actuarial assumptions involve making assumptions for discount rates, expected rate of return on plan assets, future salary increases, mortality rates and future pension increase, where necessary. The Bank’s management sets these assumptions based on market expectations at the reporting date using the best estimates for each parameter, covering the period over which the obligations are to be settled. In determining the appropriate discount rate, management considers the yield curve of high quality corporate bonds. In determining other assumptions a certain degree of judgment is required. Future salary increases are based on expected future values of inflation rates of specific countries plus a margin to reflect the best possible estimate relating to parameters such as productivity, maturity and promotions. Expected return on plan assets is based on the composition of each fund’s plan assets estimating a different rate of return for each asset class. Estimates of future values of inflation rates on salaries and the expected rates of return of plan assets represent the best management’s estimates for these variables. These estimates were derived after consultation with its advisors, and involve a degree of judgment. Due to the long-term nature of these plans, such estimates are inherently uncertain.

V. Provisions

Provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

W. Revenue and Expense Recognition

Interest income and expense are recognized on an accrual basis, taking account of the principal outstanding and the rate applicable, except for non-performing loans and advances for which interest income is only recognized upon realization. Interest income and expense include the amortization of discount or premium.

Interest income and expense presented in the income statement include:

Interest on financial assets and liabilities at amortized cost;

Interest on available-for-sale investment securities (prior to January 1, 2011);

Changes in fair value of qualifying derivatives, including hedge ineffectiveness, and related hedged items when interest rate risk is the hedged risk.

Net interest and other gain on investment securities at fair value through profit or loss presented in the income statement, includes:

Interest income;

Dividend income;

Realized and unrealized fair value changes;

Foreign exchange differences.

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability (i.e. commissions and fees earned on the loan book) are included under interest income and expense.

Other fees and commission income are recognized as the related services are performed.

Dividend income is recognized when the shareholders’ right to receive payment is established.

X. Income Tax

Income tax expense represents the sum of the tax currently payable and deferred tax. Income tax is recognized in the income statement except to the


extent that it relates to items recognized directly in other comprehensive income, in which case it is recognized in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year adjusted for effect of unamortized carry forward losses of the last three years, using rates enacted at the reporting date. Income tax payable is reflected in the statement of financial position net of taxes previously settled in the form of withholding tax.

Part of debt securities invested in by the Group is subject to withheld tax by the issuer. This tax is deducted at year-end from the corporate tax liability not eligible for deferred tax benefit, and therefore, accounted for as prepayment on corporate income tax and reflected as a part of income tax provision.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the statement of financial position and the corresponding tax base used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Y. Fiduciary Accounts

Fiduciary assets held or invested on behalf of individuals and others are non-discretionary basis and related risks and rewards belong to the account holders. Accordingly, these deposits are reflected as off-balance sheet accounts.

Z. Cash and Cash Equivalents

Cash and cash equivalents comprise balances with original maturities of a period of three months including: cash and balances with the Central Bank and deposits with banks and financial institutions.

AA. Earnings per Share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to

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ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if applicable.

4 - CRITICAL ACCOUNTING JUDGMENTS AND KEy SOURCES OF ESTIMATION UNCERTAINTy

In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised or in the future periods if the revision affects both current and future periods.

A. Critical Accounting Judgments In Applying The Group’s Accounting Policies

Classification of Financial Assets (Applicable from January 1, 2011):

Business Model:

The business model test requires the Group to assess whether its business objective for financial assets is to collect the contractual cash flows of the assets rather than realize their fair value change from sale before their contractual maturity. The Group considers at which level of its business activities such assessment should be made. Generally, a business model can be evidenced by the way business is managed and the information provided to management. However the Group’s business model can be to hold financial assets

to collect contractual cash flows even when there are some sales of financial assets. While IFRS 9 provides some situations where such sales may or may not be consistent with the objective of holding assets to collect contractual cash flows, the assessment requires the use of judgment based on facts and circumstances.

In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows the Group considers:

The frequency and volume of sales;

The reasons for any sales;

How management evaluates the performance of the portfolio;

The objectives for the portfolio.

Characteristics of the Financial Asset:

Once the Group determines that its business model is to hold the assets to collect the contractual cash flows, it exercises judgment to assess the contractual cash flows characteristics of a financial asset. In making this judgment, the Group considers the contractual terms of the acquired asset to determine that they give rise on specific dates, to cash flows that solely represent principal and principal settlement and accordingly may qualify for amortized cost accounting.

Features considered by the Group that would be consistent with amortized cost measurement include:

Fixed and / or floating interest rate; Caps, floors, collars; Prepayment options.

Features considered by the Group that would be inconsistent with amortized cost measurement include:

Leverage (i.e. options, forwards and swaps); Conversion options; Inverse floaters; variable rate coupons that reset periodically; Triggers that result in a significant reduction of

principal, interest or both.

B. Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Allowances for Credit Losses - Loans and Advances to Customers:

Specific impairment for credit losses is determined by assessing each case individually. This method applies to classified loans and advances and the factors taken into consideration when estimating the allowance for credit losses include the counterparty’s credit limit, the counterparty’s ability to generate cash flows sufficient to settle his advances and the value of collateral and potential repossession. Loans collectively assessed for impairment are determined based on losses incurred by loans portfolios with similar characteristics.

Determining Fair Values:

The determination of fair value for financial assets for which there is no observable market price requires the use of valuation techniques as described in Note 3D. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainly of market factors, pricing assumptions and other risks affecting the specific instrument.

Where available, management has used market indicators in its mark to model approach for the valuation of the Lebanese government debt securities and Central Bank certificates of deposits at fair value.

The IFRS fair value hierarchy allocates the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities, and the lowest priority to unobservable inputs. The fair value hierarchy used in the determination of fair value consists of three levels of input data for determining the fair value of an asset or liability.


Level 1 - quoted prices for identical items in active, liquid and visible markets such as stock exchanges;

Level 2 - observable information for similar items in active or inactive markets;

Level 3 - unobservable inputs used in situations where markets either do not exist or are illiquid.

Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective should remain the same; that is, an exit price from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs are developed based on the best information available in the circumstances, which may include the reporting entity’s own data. Where practical, the discount rate used in the mark to model approach included observable data collected from market participants, including risk free interest rates and credit default swap rates for pricing of credit risk (both own and counter party), and a liquidity risk factor which is added to the applied discount rate. Changes in assumptions about any of these factors could affect the reported fair value of the Lebanese Government debt securities and Central Bank certificates of deposit”.

Provision for income tax expense:

The Bank has provided for the income tax expense on the basis of an approximate amount of taxable income awaiting clearer guidance from the tax department with regard to the treatment of unrealized gain and loss recognized on investments.

Impairment of available for-sale equity investments (Prior to January 1, 2011):

The Group determines that available for sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination requires judgment. In making this judgment the Group evaluates among other factors, the normal volatility in share price.

71

5 - CLASSIFICATION OF FINANCIAL ASSETS ON THE DATE OF INITIAL APPLICATION OF IFRS 9

As discussed in Note 2 (2.1) the Bank has early adopted IFRS 9 Financial Instruments. Below is a summary of the transitional classification and measurement adjustments to the Group’s investments securities on

the date of initial application of IFRS 9. All other financial assets were classified as loans and receivables under IAS 39 and have been classified at amortized cost under IFRS 9:


Previous classification under IAS 39

Classification/ Designation under IFRS 9

Carrying amount under

IAS 39

Carrying amount

under IFRS 9

December 31, January 1,

(Exclusive of Interest Receivable) 2010 2011

LBP’000

quoted equity securities Available-for-saleFair value through profit or loss 8,023,041 8,023,041

Unquoted equities Available-for-sale

Fair value through other comprehensive income 11,967,943 11,967,943

Unquoted equities Available-for-saleFair value through profit or loss 1,716,263 1,716,263

Lebanese Treasury Bills Available-for-sale Amortized cost 490,726,972 482,092,769

Lebanese Treasury Bills Available-for-saleFair value through profit or loss 89,033,795 89,033,795

Lebanese Treasury Bills Held-to-maturity Amortized cost 185,000,000 185,000,000

Lebanese Government Bonds Available-for-sale Amortized cost 368,112,632 339,557,985

Lebanese Government Bonds Available-for-sale Fair value through profit or loss 79,432,550 79,432,550

Lebanese Government Bonds Held-to-maturity Amortized cost 113,968,775 113,968,775

Lebanese Government Bonds Held-to-maturityFair value through profit or loss 75,375,000 75,375,000

Government Bonds – non-resident Held-to-maturity Amortized cost 358,785 358,785

Alternative funds Available-for-saleFair value through profit or loss 360,113 360,113

Corporate Bonds Available-for-saleFair value through profit or loss 29,376 29,376

Subordinated Bonds Available-for-saleFair value through profit or loss 753,750 753,750

Foreign Eurobonds issued by banks Available-for-saleFair value through profit or loss 9,592,399 9,592,399

Certificates of deposit issued by Central Bank of Lebanon Available-for-sale

Fair value through profit or loss 401,739,012 401,739,012

Certificates of deposit issued by Central Bank of Lebanon Available-for-sale Amortized cost 527,075,635 512,387,742

Certificates of deposit issued by Central Bank of Lebanon Held-to-maturity Amortized cost 62,704,966 62,704,966

Corporate Eurobonds Available-for-saleFair value through profit or loss 22,887,225 22,887,225

Certificates of deposit issued by banks Available-for-sale Amortized cost 22,315,055 21,842,769

Certificates of deposit issued by banks Held-to-maturity Amortized cost 7,466,416 7,466,416

2,478,639,703 2,426,290,674

73

6 - CASH AND CENTRAL BANK

December 31,

2011 2010

LBP’000

Cash on hand 37,435,245 17,115,636

Deposits with Central Banks 140,278,078 196,855,344

Term placements with Central Bank of Lebanon 414,628,750 344,243,125

Blocked deposit with Central Bank of Lebanon 550,000 400,000

Accrued interest receivable 304,435 261,992

593,196,508 558,876,097

RetainedEarnings

Cumulative Change In

Fair Value of Investment Securities

(Under Equity)

LBP’000

Reported balances - December 31, 2010 26,082,782 72,351,780

Allocation to retained earnings of portion of change in fair value related to portfolio classified as at fair value through profit or loss (net of deferred tax) 24,948,348 (24,948,348)

Offset of change in fair value related to portfolio classified as at amortized cost (net of deferred tax) - (44,494,824)

Reported balances - January 1, 2011 51,031,130 2,908,608

The impact of the early adoption of IFRS 9 on the opening retained earnings and the cumulative change in fair value as at January 1, 2011 was as follows:

Deposits with Central Banks include compulsory deposits with Central Bank of Lebanon totaling LBP 63 billion as at December 31, 2011 (LBP 105.7 billion in 2010) denominated in Lebanese Pound. These deposits are not available for use in the Bank’s day-to-day operations and are computed on the basis of 25% and 15% of the average weekly sight and term customers’ deposits, respectively, in Lebanese Pound in accordance with local banking regulations.

Deposits with other Central Banks also include obligatory deposits for liquidity purposes totaling LBP 22.9 billion as at December 31, 2011.

Term placements with Central Bank of Lebanon as at December 31, 2011 include the equivalent in U.S. Dollar of LBP 375 billion (LBP 329 billion in 2010), deposited in accordance with local banking regulations which require banks to maintain interest earning placements in foreign currency to the extent of 15% of customers’ deposits in foreign currencies, certificates of deposit and borrowings acquired from non-resident financial institutions.


75

The net unrealized loss on trading securities amounted to LBP 1.3 billion for the year 2010 recorded under “net

interest and other (loss)/gain on trading portfolio” in the consolidated income statement (Note 33).

8 - TRADING ASSETS

December 31,

2011 2010

LBP’000

Lebanese Treasury Bills - 2,825,376

Lebanese Government Bonds - 4,221,215

Certificates of deposit issued by Central Bank of Lebanon - 2,555,417

Equity securities and preferred shares - 6,475,250

16,077,258

Accrued interest receivable - 186,379

- 16,263,637

7 - DEPOSITS wITH BANKS AND FINANCIAL INSTITUTIONS

December 31,

2011 2010

LBP’000

Purchased checks 16,952,236 8,473,754

Current accounts with correspondents 134,179,303 87,868,057

Current accounts with the parent bank 1,742,992 336,087

Current accounts with related parties 756,210 687,661

153,630,741 97,365,559

Term placements with correspondents 41,306,594 211,424,951


194,948,707 308,816,741

The above loan bears an average interest rate of 2.62% per annum and matures in 2022.

As a guarantee of the above loan, the borrower has pledged in favor of the Group regular and performing notes receivable against housing loans granted to its customers.

9 - LOAN TO A BANK

December 31,

2011 2010

LBP’000

Regular performing account 7,000,000 7,000,000


7,058,077 7,058,586


77

10 - LOANS AND ADVANCES TO CUSTOMERS

December 31, 2011 December 31, 2010

Gross AmountUnrealized

Interest

Discount on Purchased Loan

BookImpairment Allowance Carrying Amount Gross Amount Unrealized Interest

Discount on Purchased Loan

BookImpairment Allowance

Carrying Amount

LBP’000

Retail customers (standard and special monitoring):

- Housing loans 479,330,146 - - - 479,330,146 188,302,905 - - - 188,302,905

- Personal loans 368,080,052 - - - 368,080,052 282,450,214 - - - 282,450,214

- Credit cards 18,422,563 - - - 18,422,563 11,054,838 - - - 11,054,838

- Overdrafts 518,617 - - - 518,617 692,400 - - - 692,400

- Other 19,502,585 - - - 19,502,585 12,909,815 - - - 12,909,815

885,853,963 495,410,172

Staff loans 7,913,281 - - - 7,913,281 7,723,981 - - - 7,723,981

Corporate customers (standard and special monitoring):

- Corporate 623,632,770 - - - 623,632,770 353,604,654 - - - 353,604,654

- Small and medium enterprises 693,861,213 - - - 693,861,213 150,989,899 - - - 150,989,899

1,317,493,983 504,594,553

Non-performing loans and advances:

- Purchased loan book 2,539,933 - - - 2,539,933 3,589,905 - - - 3,589,905

- Substandard 13,125,852 (4,700,644) - - 8,425,208 6,715,482 (3,296,913) - - 3,418,569

- Doubtful 571,286,282 (385,868,009) (7,144,316) (102,788,626) 75,485,331 352,504,852 (290,832,948) (7,976,629) (37,130,415) 16,564,860

- Bad 122,511,378 (91,926,272) (1,133,632) (29,451,474) - 125,338,913 (98,453,967) (1,234,683) (25,650,263) -

86,450,472 23,573,334

Restructured loans and advances:

- Substandard 4,227,311 (1,120,957) - - 3,106,354 2,835,586 (222,786) - - 2,612,800

- Doubtful 3,287,341 (771,764) (80,620) (67,851) 2,367,106 9,250,306 (5,124,146) (121,115) (127,188) 3,877,857

5,473,460 6,490,657

Allowance for impairment for collectively assessed loans - - - (9,050,298) (9,050,298) - - - (6,189,901) (6,189,901)

Accrued interest receivable 16,354,836 - - - 16,354,836 4,763,921 - - - 4,763,921

2,944,594,160 (484,387,646) (8,358,568) (141,358,249) 2,310,489,697 1,512,727,671 (397,930,760) (9,332,427) (69,097,767) 1,036,366,717

Restructured loans and advances are presented based on their classification before the restructuring agreements and are reported net of waived portions of loans set-off

against unrealized interest, discount and provision for doubtful debts in the aggregate amount of LBP 72.89 billion as at December 31, 2011 (LBP 63 billion in 2010).


79

The movement of unrealized interest is as follows:

2011 2010

LBP’000

Balance - Beginning of year (457,475,848) (493,966,324)

Additions from acquiring a subsidiary (44,255,163) -

Additions (95,079,024) (89,796,571)

Write-back through profit and loss (Note 29) 6,644,714 3,464,112

Write-off 32,721,898 122,622,103

Transfer to allowance for impairment 104,789 35,541

Transfer to off-balance sheet 8,796 16,190

Transfer to allowance for collectively assessed loans - 5,218

Effect of exchange rates changes 3,384,752 143,883

(553,945,086) (457,475,848)

Expected contractual write-off on restructured loans 69,557,440 59,545,088

Balance - End of year (484,387,646) (397,930,760)

The movement of the allowance for impairment of doubtful debts is as follows:

2011 2010

LBP’000


Additions from acquiring a subsidiary (72,281,584) -

Adjustments from acquiring Lati Bank S.A.L. - 740,792

Additions (18,788,698) (1,929,964)

Write-back through profit and loss 15,461,702 11,865,119

Transfer to off-balance sheet 19,411 82,501

Transfer from unrealized interest (104,789) (35,541)

Write-off 2,159,669 1,946,580

Effect of exchange rates changes 4,311,757 19,122

Other 68,304 660,365

(135,174,460) (66,020,232)

Expected Contractual write-off on restructured loans 2,866,509 3,112,366


The movement of the discount on loan book is as follows:

2011 2010

LBP’000


Additions (176,011) (1,138,737)

Transfer to off-balance sheet - 105,392

Write back through profit and loss 613,046 1,692,748

Write-off 557,926 98,306

(8,825,192) (9,820,153)

Contractual write-off on restructured loans 466,624 487,726


Loans granted to related parties amounted to LBP 5.6 billion as at December 31, 2011 (LBP 3.3 billion as at December 31, 2010).

During 2004, the Group acquired a loan portfolio from Bank Al Madina, Lebanon. As at December 31, 2011 and 2010, purchased loans not yet transferred to the

different classifications of the loans’ portfolio due to the fact that related loan files have not yet been received, amounted to LBP 2.5 billion and LBP 3.6 billion respectively. The difference between the original amount of the allocated portion of the purchased loan portfolio and the consideration paid is reflected under discount on purchased loan book.

The movement of the allowance for impairment for collectively assessed loans and general allowances is as follows:

2011 2010

LBP’000


Additions from acquiring Lati Bank S.A.L. - (115,009)

Additions (1,771,313) -

Provision for non-resident credit risk (1,458,254) -

Write back through profit and loss 369,170 40,029

Transfer from unrealized interest - (5,218)



81

11 - INVESTMENT SECURITIES

This caption consists of the following:

December 31, 2011

Fair Value Through Profit

or Loss Amortized Cost

Fair Value Through Other Comprehensive

Income Total

LBP’000

quoted equity securities 10,096,574 - - 10,096,574Unquoted equity securities 1,024,746 - 5,932,885 6,957,631Lebanese Treasury Bills 37,015,238 936,021,394 - 973,036,632Foreign Treasury Bills - 87,477,037 - 87,477,037Lebanese Government Bonds 37,044,030 556,196,133 - 593,240,163Foreign Government Bonds - 283,270,236 - 283,270,236Foreign Eurobonds issued by banks 3,843,670 - - 3,843,670Subordinated Eurobonds 753,722 - - 753,722Certificates of deposit issued by Central Bank of Lebanon 68,324,818 988,009,522 - 1,056,334,340Certificates of deposit issued by banks - 29,353,537 - 29,353,537Corporate Bonds 14,885,523 124,926,949 - 139,812,472

172,988,321 3,005,254,808 5,932,885 3,184,176,014Accrued interest receivable 2,450,626 42,098,297 - 44,548,923

175,438,947 3,047,353,105 5,932,885 3,228,724,937

December 31, 2010

Available-for-Sale Held-to-Maturity Total

LBP’000

quoted equity securities 7,772,821 - 7,772,821quoted preferred shares 250,220 - 250,220Unquoted equity securities 13,684,206 - 13,684,206Lebanese Treasury Bills 579,760,767 185,000,000 764,760,767Lebanese Government Bonds 447,545,182 189,343,775 636,888,957Foreign Eurobonds issued by banks 9,592,399 - 9,592,399Corporate Eurobonds 22,887,225 - 22,887,225Subordinated Eurobonds 753,750 - 753,750Certificates of deposit issued by Central Bank of Lebanon 928,814,647 62,704,966 991,519,613Certificates of deposit issued by banks 22,315,055 7,466,416 29,781,471Corporate Bonds 29,376 - 29,376Foreign Government Bonds - 358,785 358,785Alternative funds 360,113 - 360,113

2,033,765,761 444,873,942 2,478,639,703Accrued interest receivable 37,192,941 6,245,163 43,438,104

2,070,958,702 451,119,105 2,522,077,807

A. Investments at Fair value through Profit or Loss:

December 31, 2011

Fair ValueAccrued Interest

ReceivableTotal Carrying

Value

Cumulative Unrealized Gain/(Loss)

LBP’000

quoted equity securities 10,096,574 - 10,096,574 (2,147,105)Unquoted equity securities 1,024,746 - 1,024,746 -Lebanese Treasury Bills 37,015,238 646,128 37,661,366 545,539Lebanese Government Bonds 37,044,030 418,969 37,462,999 958,546Foreign Eurobonds issued by banks 3,843,670 50,175 3,893,845 (529,703)Subordinated Eurobonds 753,722 57,972 811,694 (28)Certificates of deposit issued by Central Bank of Lebanon 68,324,818 1,272,682 69,597,500 1,184,374Corporate Bonds 14,885,523 4,700 14,890,223 (2,891,055)

172,988,321 2,450,626 175,438,947 (2,879,432)


83

Investments at fair value through profit or loss with fixed maturities are segregated over remaining period to maturity as follows:

December 31, 2011

LBP C/V of F/Cy

Nominal Value Amortized Cost Fair Value Average Coupon Nominal Value Amortized Cost Fair Value Average Coupon

REMAINING PERIOD TO MATURITy LBP’000 LBP’000 LBP’000 % LBP’000 LBP’000 LBP’000 %

Lebanese Treasury Bills:

Up to one year 1,008,490 1,058,255 1,057,386 11.50 - - - -

1 year to 3 years 35,500,000 35,411,444 35,957,852 6.58 - - - -

36,508,490 36,469,699 37,015,238 - - - -

Lebanese Government Bonds:

1 year to 3 years - - - - 33,594,520 33,911,838 34,945,445 8.82

3 years to 5 years - - - - 1,190,925 1,312,310 1,263,329 8.50

5 years to 10 years - - - - 756,765 861,336 835,256 9.00

- - - 35,542,210 36,085,484 37,044,030

Foreign Eurobonds issued by banks:

5 years to 10 years - - - - 4,522,500 4,373,373 3,843,670 5.14

- - - 4,522,500 4,373,373 3,843,670

Subordinated Eurobonds:

3 years to 5 years - - - - - - - -

5 years to 10 years - - - - 753,750 753,750 753,722 6.75

- - - 753,750 753,750 753,722

Certificates of deposit issued by Central Bank of Lebanon:

1 year to 3 years 41,000,000 43,676,715 44,241,035 11.13 23,119,020 23,119,020 23,752,283 9.00

3 years to 5 years - - - - 301,500 344,709 331,500 10.00

41,000,000 43,676,715 44,241,035 23,420,520 23,463,729 24,083,783

Corporate Bonds:

Up to one year - - - - 6,915,636 6,901,723 6,958,618 0.93

1 year to 3 years - - - - 292,289 28,658 28,658 7.25

Above 10 years - - - - 384,580 - - -

Perpetual Bonds - - - - 10,846,197 10,846,197 7,898,247 6.31

- - - 18,438,702 17,776,578 14,885,523


85

The movement of investments at fair value through profit or loss during the year 2011 is summarized as follows:

year Ended December 31, 2011

LBP F/Cy Total

LBP’000

Balance as at January 1, 2011 - - -

Transfer to fair value through profit or loss upon initial adoption of IFRS 9 from:

Available-for-sale 400,255,315 213,312,210 613,567,525

Held-to-maturity - 75,375,000 75,375,000

Trading securities 5,040,190 11,037,068 16,077,258

Reclassification to amortized cost (179,768,962) (131,359,943) (311,128,905)

Addition from business combination (USB Bank) - 18,666,399 18,666,399

Acquisitions 391,307 58,262,631 58,653,938

Sale (142,837,530) (141,434,574) (284,272,104)

Redemption upon maturity - (4,391,892) (4,391,892)

Adjustment against deferred charges on business acquisition - Note 16 - (691,517) (691,517)

Change in fair value taken to profit or loss (Note 34) (94,924) (6,624,584) (6,719,508)

Amortization of discount/premium (1,727,798) (277,825) (2,005,623)

Effect of exchange rates changes - (142,250) (142,250)

Balance as at December 31, 2011 81,257,598 91,730,723 172,988,321

B. Investments at Amortized Cost:

December 31, 2011

Amortized Cost Allowance for Impairment Accrued Interest Receivable Carrying Value Fair Value Change in Fair Value

REMAINING PERIOD TO MATURITy LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Lebanese Treasury Bills 936,021,394 - 16,077,105 952,098,499 950,007,405 (2,091,094)

Foreign Treasury Bills 87,477,037 - - 87,477,037 87,536,145 59,108

Lebanese Government Bonds 556,196,133 - 10,277,483 566,473,616 583,033,040 16,559,424

Foreign Government Bonds 298,834,778 (15,564,542) 20,106 283,290,342 225,303,063 (57,987,279)

Certificates of deposit issued by Central Bank of Lebanon 988,009,522 - 15,245,669 1,003,255,191 1,014,055,806 10,800,615

Certificates of deposit issued by banks 29,353,537 - 104,396 29,457,933 29,664,140 206,207

Corporate Bonds 124,926,949 - 373,538 125,300,487 119,360,192 (5,940,295)

3,020,819,350 (15,564,542) 42,098,297 3,047,353,105 3,008,959,791 (38,393,314)


Lebanese treasury bills amounting to LBP 185 billion and LBP 48.8 billion as at December 31, 2011 are pledged against two soft loans funded by the Central Bank of

Lebanon in connection with the acquisition of Lati Bank S.A.L. and whose proceeds at maturity will be utilized in 2014 and 2016, respectively, to settle the loans (Note 21).

87

Investments at amortized cost with fixed maturities are segregated over remaining period to maturity as follows:

December 31, 2011

LBP C/V of F/Cy




Up to one year 148,858,360 148,948,259 150,849,569 8.46 - - - -

1 year to 3 years 209,560,000 210,065,557 220,513,620 7.82 - - - -

3 years to 5 years 291,765,500 295,129,858 294,827,435 6.76 - - - -

5 years to 10 years 280,050,000 281,877,720 283,816,781 7.80 - - - -

930,233,860 936,021,394 950,007,405 - - -

Foreign Treasury Bills:

Up to one year - - - - 87,686,550 87,477,037 87,536,145 4.39

- - - 87,686,550 87,477,037 87,536,145

Foreign Government Bonds:

Up to one year - - - - 105,223,860 108,640,614 104,110,241 5.18

1 year to 3 years - - - - 63,329,175 63,224,295 42,775,253 4.58

3 years to 5 years - - - - 69,297,516 66,132,090 40,284,198 4.20

5 years to 10 years - - - - 62,354,880 60,478,994 37,774,586 4.63

Beyond 10 years - - - - 358,785 358,785 358,785 4.75

- - - 300,564,216 298,834,778 225,303,063


1 year to 3 years - - - - 71,465,679 71,888,837 73,899,948 8.68

3 years to 5 years - - - - 117,048,330 125,998,224 131,072,486 9.89

5 years to 10 years - - - - 178,051,579 177,828,143 186,437,135 7.79

Beyond 10 years - - - - 181,239,188 180,480,929 191,623,471 7.46

- - - 547,804,776 556,196,133 583,033,040


Up to one year - - - - 107,590,275 108,601,137 109,904,585 9.00

1 year to 3 years 287,000,000 299,234,832 311,287,562 10.39 39,195,000 39,439,077 38,329,547 5.71

3 years to 5 years 244,000,000 251,179,290 254,924,407 7.78 30,647,475 32,331,432 33,687,254 10.00

5 years to 10 years 255,000,000 257,223,754 265,922,451 7.91 - - - -

786,000,000 807,637,876 832,134,420 177,432,750 180,371,646 181,921,386

Certificates of deposit issued by banks:

Up to one year - - - - 29,396,250 29,353,537 29,664,140 7.63

- - - 29,396,250 29,353,537 29,664,140


89

The movement of investments at amortized cost during the year 2011 is summarized as follows:


LBP F/Cy Total

LBP’000


Transfer to amortized cost category upon initial adoption of IFRS 9 from:

Available-for-sale 972,282,723 383,598,542 1,355,881,265

Held-to-maturity 185,000,000 184,498,942 369,498,942

Reclassification from investments at fair value through profit or loss 179,768,962 131,359,943 311,128,905

Additions from business combination (USB Bank PLC) - 325,045,937 325,045,937

Allowance for impairment against goodwill (USB Bank) - (15,564,542) (15,564,542)

Acquisitions 584,758,361 632,084,439 1,216,842,800

Redemption upon maturity (171,876,800) (279,160,488) (451,037,288)

Swap - (68,289,750) (68,289,750)

Amortization of discount/premium (6,273,976) (1,347,290) (7,621,266)

Effect of exchange rates changes - (30,630,195) (30,630,195)

Balance as at December 31, 2011 1,743,659,270 1,261,595,538 3,005,254,808


Amortized CostAllowance for Impairment Carrying Value

Cumulative Change in Fair Value

LBP’000

Unquoted equity securities 2,303,757 (300) 5,932,885 3,629,428

Deferred tax liability (544,414)

3,085,014

C. Investments at Fair value through Other Comprehensive Income:

Effective January 1, 2011, the Bank has designated investments in equity securities as at fair value through other comprehensive income. These investments were

classified in 2010 as available-for-sale. This designation was chosen as the investments are expected to be held for a long term.

The movement of investments at fair value through other comprehensive income during the year 2011 is summarized as follows:


LBP F/Cy Total

LBP’000


Designation at fair value through other comprehensive income upon initial adoption of IFRS 9 4,622,931 7,345,012 11,967,943

Derecognition of previous holding of USB Bank PLC upon acquiring control (Note 1) - (6,755,639) (6,755,639)

Change in fair value 702,125 18,695 720,820

Effect of exchange rates changes - (239) (239)Balance as at December 31, 2011 5,325,056 607,829 5,932,885


91

D. Available-for-Sale Investment Securities:

December 31, 2010

LBP C/V in LBP of F/Cy

Amortized Cost Carrying ValueCumulative Change

in Fair ValueAccrued Interest

Receivable Amortized CostAllowance for Impairment Carrying Value

Cumulative Change in Fair Value

Accrued Interest Receivable

REMAINING PERIOD TO MATURITy LBP’000

quoted equity securities - - - - 7,023,588 - 7,772,821 749,233 -

quoted preferred shares - - - - 375,932 (125,712) 250,220 - -

Unquoted equity securities 1,737,927 4,624,256 2,886,329 - 17,851,091 (8,813,419) 9,059,950 22,278 -

Lebanese Treasury Bills 569,957,442 579,760,767 9,803,325 11,176,618 - - - - -

Lebanese Government Bonds - - - - 416,948,029 - 447,545,182 30,597,153 9,308,123

Foreign Eurobonds issued by banks - - - - 9,157,612 (355,288) 9,592,399 790,075 99,073

Corporate Eurobonds - - - - 22,887,225 - 22,887,225 - 354,482

Subordinated Eurobonds - - - - 753,750 - 753,750 - 7,107

Certificates of deposit issued by Central Bank of Lebanon 780,893,128 814,729,914 33,836,786 14,688,758 108,631,807 - 114,084,733 5,452,926 1,472,686

Certificates of deposit issued by banks - - - - 21,842,769 - 22,315,055 472,286 77,629

Corporate Bonds - - - - 299,616 (270,240) 29,376 - -

Alternative funds - - - - 541,133 (181,020) 360,113 - 8,465

Capital funds - - - - 390,443 (390,443) - - -

1,352,588,497 1,399,114,937 46,526,440 25,865,376 606,702,995 (10,136,122) 634,650,824 38,083,951 11,327,565


93

Available-for-sale investments with fixed maturities are segregated over remaining period to maturity as follows:

December 31, 2010

LBP C/V of F/Cy




Up to one year 199,676,800 199,681,704 203,429,361 9.23 - - - -

1 year to 3 years 199,295,960 199,356,859 206,153,084 7.95 - - - -

3 years to 5 years 123,560,000 124,668,879 125,218,800 7.03 - - - -

5 years to 10 years 46,250,000 46,250,000 44,959,522 7.90 - - - -

568,782,760 569,957,442 579,760,767 - - -


Up to one year - - - - 38,139,750 38,218,773 38,327,857 7.88

1 year to 3 years - - - - 58,829,935 59,139,992 59,858,592 6.72

3 years to 5 years - - - - 42,815,897 42,747,907 45,246,235 8.33

5 years to 10 years - - - - 190,933,166 200,026,537 217,025,997 9.43

Beyond 10 years - - - - 77,061,893 76,814,820 87,086,501 8.25

- - - 407,780,641 416,948,029 447,545,182

Foreign Eurobonds issued by banks:

Up to one year - - - - 199,744 137,446 137,446 6.00

5 years to 10 years - - - - 7,537,500 7,616,581 8,403,123 7.50

Beyond 10 years - - - - 1,329,615 1,048,297 1,051,830 9.22

- - - 9,066,859 8,802,324 9,592,399

Corporate Eurobonds:

5 years to 10 years - - - - 15,075,000 15,729,135 15,729,135 6.25

Beyond 10 years - - - - 7,537,500 7,158,090 7,158,090 4.75

- - - 22,612,500 22,887,225 22,887,225

Subordinated Eurobonds:

5 years to 10 years - - - - 753,750 753,750 753,750 6.75

- - - 753,750 753,750 753,750


1 year to 3 years 151,000,000 154,069,160 168,790,356 11.10 86,434,020 86,434,020 90,518,818 9.00

3 years to 5 years 281,000,000 286,041,545 306,112,135 9.56 20,848,725 22,197,787 23,565,915 10.00

5 years to 10 years 340,000,000 340,782,423 339,827,423 7.75 - - - -

772,000,000 780,893,128 814,729,914 107,282,745 108,631,807 114,084,733


1 year to 3 years - - - - 21,858,750 21,842,769 22,315,055 7.63

- - - 21,858,750 21,842,769 22,315,055

Corporate Bonds:

1 year to 3 years - - - - 299,616 29,376 29,376 7.25

- - - 299,616 29,376 29,376

Capital Funds:

Beyond 10 years - - - - 390,443 - - 5.75

- - - 390,443 - -

95

E. Held-to-Maturity Investment Securities:

December 31, 2010

LBP C/V in LBP of F/Cy

Amortized CostAccrued Interest

Receivable Fair Value Amortized Cost Accrued Interest Receivable Fair Value

REMAINING PERIOD TO MATURITy LBP’000

Lebanese Treasury Bills 185,000,000 2,052,890 193,463,797 - - -

Lebanese Government Bonds - - - 189,343,775 3,719,652 199,376,270

Certificates of deposit issued by Central Bank of Lebanon - - - 62,704,966 398,620 65,599,713

Certificates of deposit issued by banks - - - 7,466,416 28,343 7,690,367

Government Bonds - Non-resident - - - 358,785 45,658 358,785

185,000,000 2,052,890 193,463,797 259,873,942 4,192,273 273,025,135

Held-to-maturity investments are segregated over remaining period to maturity as follows:

December 31, 2010

LBP C/V of F/Cy

Redemption Value Carrying Value Fair Value Average Coupon Redemption Value Carrying Value Fair Value Average Coupon



3 years to 5 years 185,000,000 185,000,000 193,463,797 7.92 - - - -

Lebanese Government bonds:

Up to one year - - - - 30,150,000 30,136,600 30,302,480 7.88

1 year to 3 years - - - - 75,375,000 75,375,000 76,841,496 7.75

3 years to 5 years - - - - 42,210,000 42,210,000 45,321,272 9.00

5 years to 10 years - - - - 27,306,855 27,974,378 31,352,044 9.66

Beyond 10 years - - - - 13,775,535 13,647,797 15,558,978 8.25

- - - 188,817,390 189,343,775 199,376,270


1 year to 3 years - - - - 54,827,775 54,827,775 57,084,544 9.00

3 years to 5 years - - - - 7,537,500 7,877,191 8,515,169 10.00

- - - 62,365,275 62,704,966 65,599,713


1 year to 3 years - - - 7,537,500 7,466,416 7,690,367 7.63

- - - 7,537,500 7,466,416 7,690,367

Government bonds - Non-resident:

Beyond 10 years - - - - 358,785 358,785 358,785 4.75

185,000,000 185,000,000 193,463,797 - 259,078,950 259,873,942 273,025,135


97

The movement of assets acquired in satisfaction of loans was as follows during 2011 and 2010:

2011

Balance January 1, 2011 Additions Disposals

Balance December 31, 2011

LBP’000

Cost 105,763,371 5,325,630 (10,513,193) 100,575,808

Less: Impairment allowance (9,525,568) - 242,104 (9,283,464)

96,237,803 5,325,630 (10,271,089) 91,292,344

2010

Balance January 1, 2010 Additions Disposals


LBP’000

Cost 85,632,017 25,244,485 (5,113,131) 105,763,371

Less: Impairment allowance (9,653,664) - 128,096 (9,525,568)

75,978,353 25,244,485 (4,985,035) 96,237,803

12 - CUSTOMERS’ LIABILITy UNDER ACCEPTANCES

Acceptances represent documentary credits which the Group has committed to settle on behalf of its customers against commitments by those customers (acceptances). The commitments resulting from these acceptances are stated as a liability in the consolidated statement of financial position for the same amount.

Gain on the disposals reflected above amounted to LBP 18.3 billion (LBP 4.3 billion in 2010),

Foreclosed assets acquired by the Group’s foreign entities amounted to LBP 17.6 billion as at December

31, 2011. These are presented separately under investment properties and are measured at fair value. Positive change in the fair value of these properties amounted to LBP 191 million during 2011 (Note 35).

13 - ASSETS ACqUIRED IN SATISFACTION OF LOANS

This section represents real estate properties acquired by the Group’s Lebanese entities through enforcement of security over loans and advances. These assets are presented at cost as approved by the Lebanese Banking Supervisory authorities less impairment allowance. The acquisition of assets in settlement of loans requires the approval of the banking regulatory authorities. These assets should be liquidated within 2 years. In case of non-liquidation, a reserve should be appropriated from the annual net profits over a period of 20 years.

14 - PROPERTy AND EqUIPMENT

Balance January 1,

2011

Addition In Business

Combination (USB Bank) Additions Disposals

Difference in Exchange


LBP’000

Cost/Revaluation:

Owned properties 55,284,803 8,902,440 3,588,556 (830,523) (484,531) 66,460,74

Computer hardware 10,363,751 7,771,043 1,474,268 (556,044) (435,943) 18,617,075

Machines and equipments 3,082,575 756,289 252,443 (335,351) (30,403) 3,725,553

Furniture and fixtures 3,152,343 2,366,293 293,131 (22,773) (139,137) 5,649,857

vehicles 575,032 332,778 226,790 (191,379) (22,708) 920,513

Freehold and leasehold improvements 6,963,433 6,607,478 1,558,594 - (412,820) 14,716,685

79,421,937 26,736,321 7,393,782 (1,936,070) (1,525,542) 110,090,428

Accumulated depreciation (23,338,207) (14,143,486) (3,351,235) 1,303,637 837,597 (38,691,694)

Allowance for impairment of owned properties (459,183) - - 376,875 - (82,308)

(23,797,390) (14,143,486) (3,351,235) 1,680,512 837,597 (38,774,002)

Advance payments 1,038,510 - 3,946,093 - - 4,984,603

Carrying value 56,663,057 76,301,029 76,301,029


99

Balance January 1,

2010 Additions

Transfer to Intangibles and Other Liabilities

Disposals and Adjustments

Balance December 31,

2010

LBP’000

Cost/Revaluation:

Owned properties 53,363,984 2,275,034 - (354,215) 55,284,803

Computer hardware 9,643,544 803,066 - (82,859) 10,363,751

Machines and equipments 2,851,537 246,715 - (15,677) 3,082,575

Furniture and fixtures 3,019,678 133,939 - (1,274) 3,152,343

vehicles 458,201 116,831 - - 575,032

Freehold and leasehold improvements 6,905,937 204,085 - (146,589) 6,963,433

Key money 133,687 - (133,687) - -

76,376,568 3,779,670 (133,687) (600,614) 79,421,937

Accumulated depreciation (21,935,723) (2,013,064) 309,543 301,037 (23,338,207)

Allowance for impairment of owned properties (393,875) (65,308) - - (459,183)

(22,329,598) (2,078,372) 309,543 301,037 (23,797,390)

Advance payments 758,292 280,218 - - 1,038,510

Carrying value 54,805,262 56,663,057

During 2010, the Group has adjusted the fair value of the property acquired through the merger with Lati Bank S.A.L. by an amount of LBP 2.28 billion with offset

to deferred charges on business acquisition (See Note 16). The property has not yet been registered in the name of the Bank.

15 - INTANGIBLE ASSETS

Intangible assets consist of computer software and key money, the movement of which was as follows during 2011 and 2010:

Carrying Value January 1,

2011

Addition In Business

Combination (USB Bank) Additions

Amortization for the year

Translation Adjustment

Carrying Value December 31,

2011

LBP’000

Computer software 2,754,321 252,075 860,601 (1,332,236) (42,894) 2,491,867

Key money 59,295 - - (4,020) - 55,275

2,813,616 252,075 860,601 (1,336,256) (42,894) 2,547,142

Carrying Value January 1, 2010 Additions

Transfers Disposals and Adjustments

Amortization for the year

Carrying Value December 31,

2010

LBP’000

Computer software 2,890,324 1,253,837 (248,737) (1,141,103) 2,754,321

Key money - 60,300 34 (1,039) 59,295

2,890,324 1,314,137 (248,703) (1,142,142) 2,813,616


101

16 - DEFERRED CHARGES ON BUSINESS ACqUISITION

During 2009, the Group acquired the shares of Lati Bank S.A.L. for a total consideration of USD 20,037,192. The merger was completed in 2010 and was accompanied by a soft loan of LBP 185 billion (Note 21) from the Central Bank of Lebanon for a period of 4.5 years bearing fixed interest rate of 2.6% per annum, to compensate for the excess consideration paid over the fair value of the net assets acquired. During 2011, and as a result of additional costs incurred by the Group, another soft loan in the amount of LBP 48.8 billion was obtained from Central Bank of Lebanon for a period of 5 years bearing fixed interest rate of 2.6% per annum.

The soft loan’s proceeds were invested in Lebanese treasury bills, pledged in favor of the Central Bank of Lebanon as collateral against the soft loan obtained.

The excess consideration paid over the fair value of the net assets acquired and the related acquisition

costs discussed above, amounted to LBP 44.9 billion up to 2011 year end (LBP42billion up to 2010 year end). These costs were booked as deferred charges, to be amortized effective the date of each related soft loan, over their respective terms. Amortization charge is treated as a yield adjustment to the interest income on the pledged Lebanese treasury bills acquired from the soft loan proceeds. The amortization charge booked in 2011 amounted to LBP8.3billion (LBP 4.46 billion in 2010).

In addition, the Bank has realized in 2010 income in the amount of LBP 7.7 billion representing the difference between the total amount booked as deferred charges, and the net present value of the future contractual cash flows of the pledged treasury bills and the soft loan, discounted at the effective interest rate of one year treasury bills in Lebanese Pound.

The movement of deferred charges on business acquisition during the year 2011 and 2010 was as follows:

2011 2010

LBP’000

Cost incurred:

Balance as at January 1, 42,107,414 30,588,391

Income realized on acquisition - 7,728,744

Fair value adjustment of investment securities Acquired (Note 11) 691,517 102,935

Fair value adjustment of building acquired (Note 14) - (2,275,034)

Reversal of impairment on bonds realized upon disposal (1,417,622) -

Additional liability incurred and incidental costs related to acquisition 3,584,142 5,962,378

Balance as at December 31, 44,965,451 42,107,414

Accumulated amortization:

Balance as at January 1, (4,459,364) -

Amortization for the year (8,333,131) (4,459,364)

Balance as at December 31, (12,792,495) (4,459,364)

Net carrying value as at December 31, 32,172,956 37,648,050

January 31, 2011 Counter Value in LBP

Euro LBP’000

ASSETS

Cash and Banks 45,743,091 89,134,529

Loans and advances to customers 329,719,524 642,488,167

Investment securities 166,990,361 325,395,747

Impairment adjustment on investment securities (Note 11) (7,987,592) (15,564,542)

Investment property 5,700,000 11,106,963

Property, equipment and other assets 7,794,020 15,187,349

Total Assets 5547,959,404 1,067,748,213

LIABILITIES

Customers’ accounts at amortized cost 483,568,024 942,275,816

Subordinated loan 10,249,099 19,971,292

Other borrowings 30,033,333 58,522,652

Provisions and other liabilities 8,158,618 15,897,801

Total liabilities 532,009,074 1,036,667,561

Fair value of net assets 15,950,330 31,080,652

Capital increase subscribed by the Group 12,134,834 23,645,816

Total fair value of net assets 28,085,164 54,726,468

Consideration paid and value of previous holding in investee 47,380,066 92,324,323

Amount of non-controlling interest measured at the proportionate share of identifiable assets 1,583,595 3,085,775

48,963,661 95,410,098

Goodwill 20,878,497 40,683,630

17 - GOODwILL

Goodwill resulted from the acquisition of 95.61% equity stake of USB Bank PLC (Cyprus) during 2011.The condensed classes of assets and liabilities of USB

Bank PLC (Cyprus) that were acquired and assumed as at January 31, 2011 (the date of acquisition) translated to Lebanese Pounds at the reporting date are as follows:


103

18 - OTHER ASSETS

December 31,

2011 2010

LBP’000

Prepayments 8,674,556 6,640,815

Commission receivable 962,854 1,183,105

Collateral on dealings with “visa International” 1,804,400 -

Sundry debtors (Net of allowance of LBP3.24billion in 2011 and 2010) 6,740,302 4,124,644

Fair valuation of forward exchange contracts 208,417 13,386

18,390,529 11,961,950

19 - DEPOSITS FROM BANKS


LBP C/V of F/Cy Total LBP C/V of F/Cy Total

LBP’000 LBP’000

Current deposits of banks and financial institutions 351,022 3,177,418 3,528,440 2,171,251 5,995,469 8,166,720

Current deposit with Parent Bank 854 - 854 - - -

Short term deposits - 4,481,914 4,481,914 12,000,472 26,763,607 38,764,079

Accrued interest payable 157 558 715 4,596 41,896 46,492

352,033 7,659,890 8,011,923 14,176,319 32,800,972 46,977,291

The provision under sundry debtors relates to advances made in previous years against purchases of property and equipment.

20 - CUSTOMERS’ ACCOUNTS

Accounts at amortized cost:

December 31, 2011

LBP F/Cy Total

LBP’000

Deposits from customers:

Current/demand deposits 113,180,106 622,491,545 735,671,651

Term deposits 1,814,176,930 2,626,142,078 4,440,319,008

Collateral against loans and advances 70,641,337 137,012,278 207,653,615

Margins and other accounts:

Margins for irrevocable import letters of credit 92,390 5,582,758 5,675,148

Margins on letters of guarantee 3,766,240 3,536,695 7,302,935

Other margins 5,924,333 8,574,028 14,498,361

Blocked accounts 957,698 2,117,418 3,075,116

Accrued interest payable 14,732,147 21,053,990 35,786,137

Total 2,023,471,181 3,426,510,790 5,449,981,971

December 31, 2010

LBP F/Cy Total

LBP’000

Deposits from customers:

Current/demand deposits 99,773,846 322,078,589 421,852,435

Term deposits 1,603,903,743 1,767,746,594 3,371,650,337

Collateral against loans and advances 38,514,074 43,491,688 82,005,762

Margins and other accounts:

Margins for irrevocable import letters of credit 256,901 4,025,730 4,282,631

Margins on letters of guarantee 3,697,906 3,570,032 7,267,938

Other margins 7,793,586 2,264,159 10,057,745

Blocked accounts 1,546,306 1,936,283 3,482,589

Credit versus debit - 1,216,950 1,216,950

Accrued interest payable 11,500,140 9,208,784 20,708,924

Total 1,766,986,502 2,155,538,809 3,922,525,311


105

Deposits from customers at amortized cost are allocated by brackets of deposits as follows:

December 31, 2011

LBP F/Cy

No. of Customers Total Deposits % to Total Deposits Total Deposits % to Total Deposits Total

LBP’000 % LBP’000 % LBP’000

Less than LBP 250 million 91,396 737,103,525 36 785,960,311 23 1,523,063,836

Between LBP 250 million and LBP 1,500 million 2,988 606,398,969 30 894,347,055 26 1,500,746,024

Above LBP 1,500 million 456 679,968,687 34 1,746,203,424 51 2,426,172,111

94,840 2,023,471,181 100 3,426,510,790 100 5,449,981,971

December 31, 2010

LBP F/Cy

No. of Customers Total Deposits % to Total Deposits Total Deposits % to Total Deposits Total

LBP’000 % LBP’000 % LBP’000

Less than LBP 250 million 74,277 738,629,160 42 474,581,887 22 1,213,211,047

Between LBP 250 million and LBP 1,500 million 1,921 512,377,882 29 492,882,237 23 1,005,260,119

Above LBP 1,500 million 298 515,979,460 29 1,188,074,685 55 1,704,054,145

76,496 1,766,986,502 100 2,155,538,809 100 3,922,525,311

Term deposits from customers at December 31, 2010 include a total amount of LBP 60.3 billion assigned to an offering of Tier I non-cumulative perpetual redeemable “Series A” preferred shares that are expected to be issued by the Bank in 2011.

Deposits from customers at amortized cost include coded deposit accounts in the aggregate of LBP 99.7

billion (LBP 55.9 billion in 2010). These accounts are subject to the provisions of Article 3 of the Banking Secrecy Law dated September 3, 1956 which stipulates that the Bank’s management, in the normal course of business, cannot reveal the identities of these depositors to third parties, including its independent public accountants.

Deposits from customers at amortized cost include fiduciary deposits received from resident and non-resident banks for a total amount of LBP 68.5 billion and LBP 256.5 billion respectively (LBP 44.3 billion and LBP 254.4 billion respectively in 2010).

Deposits from customers include at December 31, 2011 related party deposits for a total amount of LBP 16.8 billion (LBP 19.5 billion in 2010).


107

The average balance of deposits and related cost of funds over the last 3 years were as follows:

Deposits in LBP Deposits in F/Cy

yearAverage Balance

of DepositsAverage Interest

RateAverage Balance

of DepositsAverage Interest

RateCost of Funds

LBP

LBP’000 % LBP’000 % LBP’000

2011 1,882,089,002 5.62 3,377,325,501 3.36 215,725,761

2010 1,652,987,694 5.93 1,898,692,230 3.27 159,940,335

2009 1,325,615,226 6.95 1,597,535,312 3.51 147,901,520

Accounts at fair value through profit or loss:


LBP LBP

Interest Bearing

Non-Interest Bearing Total

Interest Bearing

Non-Interest Bearing Total

LBP’000 LBP’000

Customers’ accounts designated at fair value through profit or loss - - - 2,381,087 - 2,381,087

Accrued interest payable - - - - 7,845 7,845

Total - - - 2,381,087 7,845 2,388,932

Deposits from customers matched with an embedded derivative have been designated at fair value through profit or loss. The balance included in the consolidated statement of financial position represents an amount denominated in Lebanese pounds with the option to redeem in U.S. Dollar at a fixed rate of exchange. An accounting mismatch would arise if customers’

deposits were accounted for at amortized cost, because the related derivative is measured at fair value with movements in the fair value taken through profit and loss. By designating those deposits at fair value, the movements in the fair value of these deposits are recorded in the consolidated income statement.

21 - OTHER BORROwINGS

December 31,

2011 2010

LBP’000

ESFD-CDR loan funded by the European Union (A) 10,681,654 10,627,012

Soft loan from Central Bank of Lebanon (B) 233,765,500 185,000,000

Facilities granted from the Central Bank of Lebanon (C) 22,612,500 -

Funding from the European Central Bank (D) 217,267,785 -

Other borrowings (E) 7,599,385 269,179

Accrued interest payable 1,245,153 684,370

493,171,977 196,580,561

(A) ESFD-CDR loan is funded by the European Union through the Council for Development and Reconstruction for the purpose of financing lending activities to small size enterprises. The duration of this loan is six years with a grace period of 12 months starting from the date of disbursement of the first tranche. Repayments of principal will be in quarterly installments in the remaining five years. The cost of funds is linked to the benchmark of the two-year certificates of deposit as issued by the Central Bank of Lebanon.

(B) On May 13, 2010 the Bank was granted a soft loan in the amount of LBP 185 billion from the Central Bank of Lebanon for a period of 4.5 years maturing on November 6, 2014 at an interest rate of 2.6% per annum. This loan is collateralized by Lebanese treasury bills (Refer to Notes 11 and 16).

On August 18, 2011 the Bank was granted another soft loan in the amount of LBP 48.8 billion from the Central Bank of Lebanon for a period of 5 years maturing on August 11, 2016 at an interest rate of 2.6% per annum. This loan is collateralized by Lebanese treasury bills (Refer to Notes 11 and 16).

(C) On October 18, 2011 the Bank obtained a facility from the Central Bank of Lebanon with a limit reaching USD 200 million out of which USD 15 million (C/v LBP 22.6 billion) have been utilized as at December 31, 2011. The facility bears an annual interest rate of one month LIBOR + 2% and has a maturity of up to 5 years.

(D) The funding from the European Central Bank is secured through credit operations in the context of monetary policy in the euro zone. This funding is secured up to Euro 30 million by the Cyprus Government and bears an annual interest at the rate of 1%.

(E) Other borrowings include a loan for USD 5 million (C/v LBP 7.54 billion) obtained from a non-resident specialized investment fund on December 28, 2011. The proceeds of the loan will be used to fund micro, small, and medium enterprises in Lebanon. The loan bears an annual interest rate of 6 months LIBOR + 3.60% and will be repaid through 10 semi-annual payments of USD 500,000 each starting July 2012 and over 5 years.


109

The remaining contractual maturities of the borrowings above are as follows:

2011 2010

LBP’000

Up to 1 year 226,702,659 3,736,469

1 to 3 years 191,106,357 6,206,173

3 to 5 years 75,362,961 186,637,919

493,171,977 196,580,561

22 - SUBORDINATED BONDS

December 31,

2011 2010

LBP’000

Tier I Capital

Capital Securities 1,897,738 -

Tier II Capital:

Non-convertible bonds 15,588,720 -

Convertible bonds 1,805,778 -

17,394,498 -

Accrued interest payable 3,808 -

19,296,044 -


Capital Securities

The Capital Securities were issued on December 30, 2005 by the Bank’s subsidiary in Cyprus and were offered to professional investors and to a specific number of non-professional investors in Cyprus. The Capital Securities rank as Tier I capital and have no maturity date, however, they may be redeemed in whole at the option of the subsidiary subject to the prior consent of the Central Bank of Cyprus, at their nominal amount together with any outstanding interest payments, five years after their issue date or on any interest payment date thereafter, and provided that they will be replaced with capital of equivalent or senior ranking unless the Central Bank of Cyprus concludes that the subsidiary’s capital is at a satisfactory level.

The Capital Securities bear floating interest rate, which is revised at the beginning of each period and is valid for that specific period. Interest rate is equal to the base rate of the subsidiary at the beginning of each period interest is charged plus 1.60% annually. Interest is payable every six months, on June 30 and December 31. According to the terms of issue, if the subsidiary does not proceed with the repurchase of Capital Securities within ten years from their issuance date (i.e. up to December, 31 2015), then from January 1, 2016, the Capital Securities will bear floating interest rate that will be revised at the beginning of each period in which interest will be charged and will be equal to the base rate ruling at the beginning of each period interest is charged plus 2.25% annually.

Non-convertible bonds

On December 30, 2010 the Bank’s subsidiary in Cyprus issued bonds amounting to €8,000,000 with a maturity date of December 31, 2019. The bonds constitute direct, unsecured, subordinated securities of the subsidiary and bear a fixed interest rate of 7.50% on the nominal value for the period from the issue date to December 31, 2014. From December 31, 2014 to their maturity, the bonds will bear a fixed annual interest rate of 9% on the nominal value. Excluding the first interest rate period commencing on December 22, 2009 (inclusive) and maturing on June 30, 2010 (exclusive), all subsequent interest periods will cover six months.

The subsidiary has the right to redeem fully in whole the bonds at any time before their maturity date, in cash at their nominal value, along with any accrued interest relating to the current interest rate period, on June 30, 2015, or on any following interest payment date, upon approval from the Central Bank of Cyprus.

Convertible bonds

On June 14, 2010, the Bank’s subsidiary in Cyprus issued €1,209,060 convertible bonds maturing on June 30, 2020.The convertible debentures are direct, unsecured and subordinated obligations of the subsidiary and carry a fixed annual rate of 7.25% on the nominal value for the period from the date of issue until June 30, 2015. From July 1, 2015 until their maturity, the convertible bonds will carry fixed interest rate 8.75% annually on the nominal value. Except the first interest period commencing on May 26, 2010 (inclusive) and maturing on June 30, 2010 (exclusive), each interest period will be 6 months.

The convertible bonds may, at the option of the holder, be converted into ordinary shares of the subsidiary in the year 2012 until 2014 as follows:

•15-30 March and 15-30 September for 2012•15-30 March and 15-30 September for 2013•15-30 March and 15-30 September for 2014

The conversion price is set at the average closing price of the share of the subsidiary on the CSE for a period of 30 days prior to the beginning of each conversion period. For the conversion periods of the years 2013 and 2014, the conversion prices are as described above, less 5% and 15% respectively.

The subsidiary in Cyprus has a right of early redemption of convertible bonds in whole, but not in part, a cash at par plus accrued interest of the current interest period on June 30, 2015 or any interest payment date, after approval from the Central Bank of Cyprus.

111

23 - OTHER LIABILITIES

December 31,

2011 2010

LBP’000

Withheld taxes and income tax payable 8,841,159 8,004,721

Deferred tax liability on accrued interest receivable 1,641,857 1,469,132

Deferred tax liability on future dividend distribution of subsidiaries 29,748 92,583

Deferred tax liability on other comprehensive income 544,414 12,258,609

Tax liability on net change in carrying values of investments recognized in opening retained earnings (transition to IFRS 9) 4,404,407 -

Other deferred income tax liability 345,780 -

Due to the Social Security National Fund 457,330 417,593

Checks and incoming payment orders in course of settlement 15,887,377 18,534,886

Blocked capital subscriptions for companies under incorporation 337,622 453,511

Accrued expenses 8,615,167 6,234,634

Financial guarantees 922,582 616,245

Payable to personnel and directors 6,969,944 5,767,217

Sundry accounts payable 13,519,961 11,686,606

Dividends payable - 60,633

Deferred income 216,444 242,415

62,733,792 65,838,785

The tax returns for the years from 2007 to 2011 are still subject for review by the tax authorities and any additional tax liability depends on the outcome of such review.

24 - PROVISIONS

Provisions consist of the following:

December 31,

2011 2010

LBP’000

Provision for staff end-of-service indemnity 20,369,819 8,507,068

Provision for contingencies 15,596,824 15,658,635

Provision for loss on foreign currency position 132,712 29,155

36,099,355 24,194,858

The movement of the provision for contingencies is as follows:

2011 2010

LBP’000

Balance January 1 15,658,635 16,471,970

Provision for contingent staff benefits (Note 36) - 56,270

Additions 180,900 -

Settlements (242,711) (869,605)

Balance December 31 15,596,824 15,658,635

The movement of the provision for staff end-of-service termination indemnity is as follows:

2011 2010

LBP’000

Balance January 1 8,507,068 7,846,026

Transfer on business acquisition (USB Bank) 9,098,063 -

Additions (Note 36) 4,268,468 885,786

Additions - Legal expenses and sundry charges 78,499 79,506

Write back (522,770) -

Settlements (700,133) (304,250)

Other adjustments 93,801 -

Effect of exchange rate fluctuations (453,177) -

Balance December 31 20,369,819 8,507,068


113

27 - RESERVES

December 31,

2011 2010

LBP’000

Legal reserve (a) 19,843,428 12,887,560

Reserve for general banking risks (b) 20,368,707 15,012,667

Free reserves 48,190,325 35,756,693

88,402,460 63,656,920

Regulatory reserve for assets acquired in satisfaction of loans (Note 13) 14,028,871 13,078,756

102,431,331 76,735,676

(a) The legal reserve is constituted in conformity with the requirements of the Lebanese Money and Credit Law on the basis of 10% of the yearly net profits. This reserve is not available for distribution.

(b) The reserve for general banking risks is constituted according to local banking regulations, from net profit, on the basis of

a minimum of 2 per mil and a maximum of 3 per mil of the total risk weighted assets, off-balance sheet risk and global exchange position as defined for the computation of the solvency ratio at year-end. The cumulative reserve should not be less than 1.25% at the end of the 10th year (2007) and 2% at the end of the 20th year.

25 - SHARE CAPITAL

At December 31, 2011 and 2010, the Bank’s ordinary share capital consists of 152,700,000 fully paid shares of LBP 1,000 par value each.

As at 2011 year-end, the Bank has a fixed exchange position in the amount of USD 56,624,212, authorized by the Central Bank of Lebanon, to hedge its equity against exchange fluctuations within the limit of 60% of equity denominated in Lebanese Pound (USD 56,624,212 as at 2010 year-end).

26 - PREFERRED SHARES

During 2011, the Bank issued 550,000 Tier I Non-Cumulative Perpetual Redeemable “Series B” preferred shares, at an issue price of USD100 per share with a nominal value of LBP 1,000 each. Issuance of the preferred shares was approved by the Bank’s General Assembly of Shareholders on November 4, 2011.

During 2010, the Bank issued 400,000 Tier I Non-Cumulative Perpetual Redeemable “Series A” preferred shares, at an issue price of USD 100 per share with a nominal value of LBP 1,000 each. Issuance of the preferred shares was approved by the Bank’s General Assembly of Shareholders on July 30, 2010. As at December 31, 2010 LBP 60.3 billion were subscribed by customers and booked under time deposits escrow account, and transferred to equity in 2011.

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T SN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

28 - DIVIDENDS PAID

The Bank’s General Assembly held on April 8, 2011 resolved to distribute dividends to shareholders of LBP

26.7 billion equivalent of LBP 175 per share (LBP 22.8 billion in 2010).

29 - INTEREST INCOME

2011 2010

LBP’000

Interest income from:

Deposits with Central Banks 4,330,466 4,402,135

Deposits with banks and financial institutions 1,807,087 1,496,679

Deposits with Parent Bank - 88,561

Loan to a bank 185,947 150,286

Investment securities (excluding FvTPL) 184,845,868 180,464,998

Loans and advances to customers 153,354,816 70,023,645

Interest realized on non-performing loans and advances to customers (Note 10) 6,644,714 3,464,112

Other 668,682 140,083

351,837,580 260,230,499

Interest income realized on non-performing loans and advances to customers represent recoveries of interest. Accrued interest on impaired loans

and advances is not recognized until recovery/rescheduling agreements are signed with customers.

115

30 - INTEREST ExPENSE

2011 2010

LBP’000

Interest expense on:

Deposits and borrowings from banks 2,325,151 333,404

Soft loan from Central Bank of Lebanon 5,355,791 3,113,139

Deposits and borrowings from Parent Bank - 2,601

Customers’ accounts at amortized cost 215,725,761 159,940,335

Customers’ accounts designated at fair value through profit or loss 212,406 212,576

Interest on capital securities and bonds issued 1,422,000 -

Other borrowings 427,674 443,971

225,468,783 164,046,026

31 - FEE AND COMMISSION INCOME

2011 2010

LBP’000

Commission on documentary credits 2,032,705 1,532,752

Commission on letters of guarantee 2,073,470 1,271,223

Commission on transactions with banks 71,144 92,985

Service fees on customers’ transactions 11,116,882 6,779,398

Commission on loans and advances 5,590,324 4,424,924

Commission earned on insurance policies 6,919,713 6,203,013

Brokerage commission 554,924 -

Other 3,885,629 450,846

32,244,791 20,755,141

32 - FEE AND COMMISSION ExPENSE

2011 2010

LBP’000

Brokerage fees 3,239,175 1,718,448

Commission on transactions with banks and financial institutions 324,665 288,195

Commission paid to car dealers 1,671,693 1,195,599

Other 1,468,128 272,872

6,703,661 3,475,114

33 - NET INTEREST AND OTHER (LOSS)/GAIN ON TRADING PORTFOLIO

2011 2010

LBP’000

Interest income - 865,196

Dividends received - 416,436

Net unrealized loss (Note 8) - (1,299,696)

Net realized gain - 2,608

- (15,456)

34 - NET INTEREST AND OTHER GAIN/(LOSS) ON INVESTMENT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

2011 2010

LBP’000

Interest income 20,016,502 -

Dividends received 1,718,822 -

Net unrealized Loss (Note 11) (6,719,508) -

Net realized gain 5,365,012 -

20,380,828 -


117

35 - OTHER OPERATING INCOME

2011 2010

LBP’000

Gain on sale of available-for-sale securities:

Equities - 318,083

Lebanese Treasury Bills - 4,277,388

Lebanese Government Bonds - 2,527,474

- 7,122,945

Dividends on available-for-sale securities - 1,048,997

Change in fair value of investment properties (Note 13) 190,805 -

Foreign exchange gain 4,185,732 2,202,481

Miscellaneous 1,090,955 913,466

5,467,492 11,287,889

36 - STAFF COSTS

2011 2010

LBP’000

Salaries 42,460,840 23,459,143

Board of directors remunerations 5,041,402 4,037,682

Social Security contributions 4,454,246 3,677,168

Provision for contingent staff benefits (Note 24) - 56,270

Provision for end-of-service indemnities (Note 24) 4,268,468 885,786

Bonuses and other staff benefits and costs 11,478,428 9,848,965

67,703,384 41,965,014


37 - GENERAL AND ADMINISTRATIVE ExPENSES

2011 2010

LBP’000

Fees and taxes 2,103,036 568,899

Rent and building services 2,871,272 934,274

Legal and professional fees 5,772,410 3,084,299

Telephone and postage 1,441,711 1,084,438

Maintenance and repairs 5,721,565 3,605,126

Electricity and water 1,275,316 746,583

Heat, light and power 710,032 494,104

Insurance 1,390,401 792,436

Advertising and publicity 5,235,330 3,844,442

Public relations and entertainment 245,214 348,304

Printing and stationary 889,808 669,730

Subscriptions 1,875,345 1,544,538

Travel 801,916 263,518

Donations 89,827 111,304

Software implementation fees 62,366 232,490

Credit card expenses 986,604 957,914

Miscellaneous expenses 4,565,343 3,176,762

36,037,496 22,459,161

119

38 - EARNINGS PER SHARE

The computation of the basic earnings per share is based on the Group’s net profit before non-recurring income and the weighted average number of outstanding shares during each year held by the Group. The weighted average number of shares to compute basic earnings per share is 152,700,000 shares in 2011 and 2010.

39 - FINANCIAL INSTRUMENTS wITH OFF-BALANCE SHEET RISKS

The guarantees and standby letters of credit and the documentary and commercial letters of credit represent financial instruments with contractual amounts representing credit risk. The guarantees and standby letters of credit represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties and are not different from loans and advances on the statement of financial position. However, documentary and commercial letters of credit, which represent written undertakings by the Group on behalf of a

customer authorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralized by the underlying shipments documents of goods to which they relate and, therefore, have significantly less risks. Forward exchange contracts outstanding as of December 31, 2011 and 2010 represent positions held for customers’ accounts. The Group entered into such instruments to serve the needs of customers, and these contracts are fully hedged by the Group.

As at December 31, 2011, the Group had issued letters of guarantees in favor of the parent bank and other related parties amounting to LBP 30.15 billion of which LBP 22.6 billion has been utilized.

40 - FIDUCIARy ACCOUNTS

Fiduciary deposits are mainly invested in back-to-back lending and related to resident lenders and borrowers. The risks and rewards of the related operations belong to account holders.


41 - CASH AND CASH EqUIVALENTS

Cash and cash equivalents for the purpose of the statement of cash flows consist of the following:

December 31,

2011 2010

LBP’000

Cash on hand 37,435,245 17,115,636

Deposits with Central Banks (excluding compulsory deposits) 54,343,838 91,153,930

Term placements with Central Bank of Lebanon (with original maturity of less than 3 months) 413,121,250 342,735,625

Purchased Checks 16,952,236 8,473,754

Current accounts with correspondents 134,179,303 87,868,057

Current accounts with the parent bank 1,742,992 336,087

Current accounts with related parties 756,210 687,661

Term placements with correspondents 41,306,594 211,424,951

Blocked deposit with the Central Bank of Lebanon 550,000 400,000

700,387,668 760,195,701

121

(a) Assets and liabilities acquired in business combination (USB Bank) during 2011:

LBP’000

Assets

Compulsory reserves with the Central Bank 13,745,247

Loans and advances 642,488,167

Investments at fair value through profit or loss 17,716,697

Investments at amortized cost 307,679,050

Investment property and property and equipment 23,014,411

Intangibles and other assets 3,279,901

1,007,923,473

Liabilities

Customers’ accounts 942,275,816

Other borrowings 58,522,652

Subordinated loan 19,971,292

Other liabilities 7,252,915

Provisions 8,644,886

1,036,667,561

(b) Positive change in fair value of available-for-sale securities of LBP 53.3 billion and related deferred tax liability of LBP 7.38 billion during the year 2011.

(c) Assets acquired in satisfaction of loan in the amount of LBP 5.3 billion during the year 2011 (LBP 25.2 billion during 2010).

(d) Effect of initial adoption of IFRS 9 (Note 5).

(e) Derecognition of the previous holding in USB Bank PLC upon acquisition of control during 2011.

(f) Transfer of customer deposits under escrow accounts in the amount of LBP 60.3 billion to

preferred shares and share premium during the year 2011.

(g) Positive change in fair value of available-for-sale securities of LBP 7.79 billion and related deferred tax liability of LBP 1.19 billion during 2010.

(h) valuation adjustment of acquired property from Lati Bank S.A.L. in the amount of LBP 2.28 billion against deferred charges on business acquisition during 2010.

(i) Transfer of provision of LBP 175 million from property and equipment to other liabilities during 2010.

Major non-cash transactions excluded from the statement of cash flows for the years ended December 31, 2011 and 2010 are summarized as follows:

42 - SEGMENT INFORMATION

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Group’s reportable segments under IFRS 8 are as follows:

Resident:

a. Corporate banking includes services provided in relation to loans and other credit facilities and deposits and current accounts for corporate and institutional customers.

b. Retail banking - includes retail lending and deposits, banking services, insurance brokerage services, overdrafts, credit card facilities, and funds transfer facilities.

c. Treasury - includes treasury management, correspondent banking, proprietary trading, managing reserve and capital requirements, asset/liability management, and foreign exchange transactions.

d. Private banking - includes the operations with private banking clients including fiduciary deposits, equities and bonds trading, foreign exchange and others.

e. Others - includes income from sale of assets, soft loan from Central Bank of Lebanon for the purpose of compensating for the excess consideration paid over the fair value of the net assets acquired from Lati Bank, depreciation, and other income and expenses.

Non-Resident:

The Group’s subsidiary in Cyprus operates in a single segment and information is provided for management on this basis.


123

Distribution of assets and liabilities by segment:

December 31, 2011

Resident Non-Resident

Corporate Retail Treasury Private Banking Other Cyprus Entity Elimination Total

LBP’000

Assets

Cash and banks - 27,605,109 691,493,786 318,544 - 68,727,776 - 788,145,215

Investments at fair value through profit or loss - - 160,093,781 - - 15,345,166 - 175,438,947

Investments at fair value through other comprehensive income - - - - 5,932,885 - - 5,932,885

Loan to a bank - - 7,058,077 - - - - 7,058,077

Loans and advances to customers 738,744,948 784,789,765 - 23,110,089 13,429,222 750,415,673 - 2,310,489,697

Investments at amortized cost - 2,027,190,581 - 337,380,406 171,528,601 511,253,517 - 3,047,353,105

Customers’ liability under acceptances 43,398,110 64,625 - - - - - 43,462,735

Goodwill - - - - 40,683,630 - - 40,683,630

Other assets - - - - 238,299,768 - - 238,299,768

Inter-segments - 536,708,650 - 355,091,224 375,681,473 - (1,267,481,347) -

Total Assets 782,143,058 3,376,358,730 858,645,644 715,900,263 845,555,579 1,345,742,132 (1,267,481,347) 6,656,864,059

Liabilities

Deposits from banks - - 8,011,923 - - - - 8,011,923

Customers' deposits 350,673,953 3,365,676,607 - 715,900,257 - 1,017,731,154 - 5,449,981,971

Liability under acceptances 43,398,110 64,625 - - - - - 43,462,735

Other borrowings 7,602,773 10,682,124 - - 257,570,418 217,316,662 - 493,171,977

Subordinated bonds - - - - - 19,296,044 - 19,296,044

Other liabilities and provisions - - - - 80,154,777 18,678,370 - 98,833,147

Inter-segments 380,403,597 - 887,077,750 - - - (1,267,481,347) -

Total Liabilities 782,078,433 3,376,423,356 895,089,673 715,900,257 337,725,195 1,273,022,230 (1,267,481,347) 6,112,757,797


125

December 31, 2010

Corporate Retail Treasury Private Banking Other Elimination Total

LBP’000

Assets

Cash and banks - 17,116,156 850,264,061 312,621 - - 867,692,838

Trading assets - - 5,550,038 10,713,599 - - 16,263,637

Loan to a bank - - 7,058,586 - - - 7,058,586

Loans and advances to customers 459,018,054 548,418,901 - 10,540,595 18,389,167 - 1,036,366,717

Investment securities - 1,688,808,533 242,959,849 398,824,200 191,485,225 - 2,522,077,807

Customers’ liability under acceptances 20,006,573 - - - - - 20,006,573

Other assets - 414,280 - 82,197 204,827,999 - 205,324,476

Inter-segments - 765,692,415 - 180,824,625 255,816,720 (1,202,333,760) -

Total Assets 479,024,627 3,020,450,285 1,105,832,534 601,297,837 670,519,111 (1,202,333,760) 4,674,790,634

Liabilities

Deposits from banks - - 46,977,009 282 - - 46,977,291

Customers' deposits 312,743,711 3,008,648,865 2,388,932 601,132,735 - - 3,924,914,243

Liability under acceptances 20,006,573 - - - - - 20,006,573

Other borrowings 271,426 10,627,718 - - 185,681,417 - 196,580,561

Other liabilities and provisions - 1,173,293 - 104,006 88,756,344 - 90,033,643

Inter-segments 146,002,917 - 1,056,466,596 - - (1,202,469,513) -

Total Liabilities 479,024,627 3,020,449,876 1,105,832,537 601,237,023 274,437,761 (1,202,469,513) 4,278,512,311

The geographical distribution of assets and liabilities are disclosed in Note 44 to the financial statements.


127

Distribution of income statement by segment:

The following is an analysis of the Bank’s revenue and results from continuing operations by reportable segment:


Resident Non-Resident

Corporate Retail Treasury Private Banking Other Cyprus Entity Total

LBP’000

Net interest income 33,243,954 56,271,825 4,538,793 (8,392,480) 9,414,237 31,292,468 126,368,797

Net Commission income 5,663,570 13,760,447 (240,036) 614,638 211,190 5,531,321 25,541,130

Investments at fair value through profit or loss - - 22,531,343 191,380 - (2,341,895) 20,380,828

Other operating income 584,915 533,339 2,195,866 52,232 971,397 1,129,743 5,467,492

Other non operating income - - 1,769,595 - - - 1,769,595

Net recovery on loans and advances to customers - - - - (323,035) (5,243,096) (5,566,131)

Other (expense)/income - Net (14,973,254) (55,349,820) (3,315,200) (2,991,439) 19,282,436 (31,049,732) (88,397,009)

Income tax expense (1,384,745) (1,370,254) (2,949,678) (12,374) (7,353,172) - (13,070,223)

Inter-segment (18,649,230) (10,037,636) (15,463,603) 10,079,344 34,071,125 - -

4,485,210 3,807,901 9,067,080 (458,699) 56,274,178 (681,191) 72,494,479


Corporate Retail Treasury Private Banking Other Total

LBP’000

Net interest income 18,410,002 42,531,727 22,771,461 7,059,279 5,412,004 96,184,473

Net Commission income 4,360,469 12,893,230 (183,597) 193,167 16,758 17,280,027

Trading loss - - (1,126,123) 1,110,667 - (15,456)

Other operating income 321,803 376,174 9,675,796 118,218 795,898 11,287,889

Net recovery on loans and advances to customers (18,659) (1,069,423) - - 12,758,176 11,670,094

Other (expense) / income - Net (11,711,847) (49,434,376) (3,602,887) (2,762,432) 11,685,154 (55,826,388)

Income tax expense (1,723,073) (851,090) (4,175,775) (893,948) (4,649,596) (12,293,482)

Inter-segments (6,210,904) 1,862,716 (13,013,108) (3,558,908) 20,920,204 -

3,427,791 6,308,958 10,345,767 1,266,043 46,938,598 68,287,157


129

43 - COLLATERAL GIVEN

The carrying values of financial assets given as collateral are as follows:

December 31

2011 2010

Corresponding Facilities

Amount of Pleged Asset Maturity Date

Amount of Facility Nature of Facility

Amount ofPledged Assets

LBP’000

Lebanese treasury bills 185,000,000November 6,

2014 185,000,000

Soft loan from CentralBank of Lebanon 185,000,000

Lebanese treasury bills 48,765,500August 11,

2016 48,765,500

Soft loan from Central Bank of Lebanon 48,765,500

44 - FINANCIAL RISK MANAGEMENT

In the ordinary course of business, the Group is exposed to various risks which are managed and maintained at each Group entity level by applying its own processes of identification, measurement and monitoring.

A. Credit Risk

Credit risk is the risk of financial loss to the Group if counterparty to a financial instrument fails to discharge an obligation. Financial assets that are mainly exposed to credit risk are deposits with banks, loans and advances to customers and investment securities. Credit risk also arises from off-balance sheet financial instruments such as letters of credit and letters of guarantee.

Concentration of credit risk arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentration of credit risk indicates the relative sensitivity of the Group’s performance affecting a particular industry or geographical location.

1. Management of Credit Risk

The Board of Directors has the responsibility to approve the general credit policy as recommended by the Credit Committee.

The Credit Committee has the responsibility for the development of the credit function strategy and implementing principles, frameworks, policies and limits.

2. Measurement of Credit Risk

(a) Loans and advances to customers

The commercial and consumer credit extension divisions manage credit risk based on the risk profile of the borrower, repayment source and the nature of the underlying collateral given current events and conditions.

Assessment of the credit risk profile of an individual counterparty is based on an analysis of the borrower’s financial position in conjunction with current industry, economic and macro geopolitical trends. As part of the overall credit risk assessment of a borrower, each credit exposure or transaction is assigned a risk rating and is subject to the Credit Committee’s approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are adjusted on an ongoing basis, if necessary, to reflect changes in the obligor’s financial condition, cash flows or ongoing financial viability.

The Group assesses the probability of default of individual counterparties and classifies these commitments to reflect the probability of default as listed below:

watch List: Debts that are not impaired but for which management determines that they require special monitoring due to a deficiency in the credit file regarding collateral, financial position or profitability.

Past due but not impaired: Debts where contractual interest or principal are past due but management believes that classification as impaired is not appropriate on the basis of the level of collateral available and the stage of collection of amounts owed.

Rescheduled debts: Debts that have been restructured after they have been classified as substandard or doubtful and where the Group has made concessions that it would not otherwise consider. Once a loan is restructured, the last classification as substandard or doubtful does not change.

Substandard debts: Debts that have characteristics such as significant deterioration in profitability and cash flows for a long period and in collateral, the occurrence of recurring delays in settlement of maturing payments, or the facilities are not utilized for the purpose they were intended for.

Doubtful or bad debts: Debts that have the characteristics of substandard debts, in addition to that they are considered to be at a higher degree of risk due to the continued deterioration of the debtor’s situation and the adequacy of collateral, the discontinuity of deposit movement or repayment, or not respecting the maturities of the rescheduling of the debt for a period exceeding 3 months from maturity date. The debt becomes bad when the expected amount to be collected is nil or negligible.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loan loss allowance established in respect of losses that management considers have been increased but not been identified as loans subject to individuals assessment for impairment.

The Group writes off a loan / security balance (and any related allowances for impairment losses) when it determines it will not be collectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower / issuer’s financial position such as the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure or financial instruments.

(b) Debt securities

The risk of the debt instruments included in the investment portfolio relates mainly to sovereign risk.

3. Risk Mitigation Policies

The Group mainly employs collateral to mitigate credit risk. The principal collateral types for loans and advances are:

Pledged deposits; Mortgages over real estate properties (land,

commercial and residential properties); Bank guarantees.

Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities.

4. Financial assets with credit risk exposure and related concentrations

(a) Exposure to credit risk and concentration by counterparty.

The tables below reflect the Group’s exposure to credit risk by counterparty segregated between the categories of deposits with banks and financial institutions and loans and advances:


131

(a.1) Distribution of deposits with banks and financial institutions by brackets:

December 31, 2011

LBP Base Accounts F/Cy Base Accounts

Total Amount % to Total Total Amount % to TotalNo. of Counter-

Parties

LBP’000 % LBP’000 %

Less than LBP 5 billion 175,857 100 20,810,881 8 48

From LBP 5 billion to LBP 15 billion - - 70,224,038 38 9


175,857 100 194,772,850 100 62

December 31, 2010


Total Amount % to Total Total Amount % to TotalNo. of Counter-

Parties

LBP’000 % LBP’000 %

Less than LBP 5 billion 4,047,114 37 24,183,004 8 44

From LBP 5 billion to LBP 15 billion 7,000,000 63 93,757,480 32 12


11,047,114 100 297,769,627 100 64

(a.2) Distribution of performing loans and advances to customers by brackets (standard and special monitoring):

December 31, 2011


Total Loans% to

Total Loans Total Loans% to

Total LoansNo. of Counter-

PartiesLBP’000 % LBP’000 %

Less than LBP 0.5 billion 427,056,521 84 515,689,103 30 51,439

From LBP 0.5 billion to LBP 1,5 billion 32,732,016 6 216,786,281 13 301

More than LBP 1.5 billion 47,698,320 10 987,653,821 57 221

507,486,857 100 1,720,129,205 100 51,961

December 31, 2010


Total Loans% to

Total Loans Total Loans% to

Total LoansNo. of Counter-

PartiesLBP’000 % LBP’000 %

Less than LBP 0.5 billion 345,764,697 86 241,516,487 39 41,346

From LBP 0.5 billion to LBP 1.5 billion 27,447,398 7 72,110,742 12 121

More than LBP 1.5 billion 29,006,890 7 296,646,413 49 77

402,218,985 100 610,273,642 100 41,544


133

(a.3) Details of the Group’s exposure to credit risk with respect to loans and advances to customers:

December 31, 2011 Fair Value of Collateral Received

Gross Exposure Net of Unrealized

Interest and Discount

Allowance for Impairment Net Exposure Bank Guarantees

First Degree Mortgage on

Properties Equity Securities Debt Securities Others Total Guarantees

Lesser of Individual

Exposure or Total Guarantees

LBP’000

Regular loans and advances 2,227,616,063 - 2,227,616,063 36,438,427 1,220,737,868 63,994,484 3,766,012 417,750,816 1,932,548,205 1,445,968,730

Substandard (including restructured debts) 11,531,562 - 11,531,562 82,480 1,479,939 51,185 - 67,272 1,768,930 1,566,964

Doubtful (including restructured debts) 180,687,363 (102,834,926) 77,852,437 - 65,486,577 314,756 - 7,813,905 74,032,279 53,339,449

Loss (including restructured debts) 29,473,025 (29,473,025) - 43,908 884,396 78,185 301,500 1,207,196 2,515,714 1,489,181

Loan portfolio purchased 2,539,933 - 2,539,933 - - - - - - -

Collective provision - (9,050,298) (9,050,298) - - - - - - -

2,451,847,946 (141,358,249) 2,310,489,697 36,564,815 1,288,588,780 64,438,610 4,067,512 426,839,189 2,010,865,128 1,502,364,324

December 31, 2010 Fair Value of Collateral Received

Gross Exposure Net of Unrealized

Interest and Discount

Allowance for Impairment Net Exposure Bank Guarantees

First Degree Mortgage on

Properties Equity Securities Debt Securities Others Total Guarantees

Lesser of Individual

Exposure or Total Guarantees

LBP’000

Regular loans and advances 1,012,492,627 - 1,012,492,627 26,754,881 366,397,801 26,049,163 527,625 294,048,156 790,949,154 613,898,222

Substandard (including restructured debts) 6,031,369 - 6,031,369 43,908 1,622,370 - - 71,155 1,737,433 1,689,845

Doubtful (including restructured debts) 57,677,162 (37,234,445) 20,442,717 - 73,600,175 - - 3,302,389 76,904,067 75,885,861

Loss (including restructured debts) 25,673,420 (25,673,420) - 70,769 1,333,227 13,500 - 1,509,861 2,928,312 2,584,116

Loan portfolio purchased 3,589,905 - 3,589,905 - - - - - - -

Collective provision - (6,189,901) (6,189,901) - - - - - - -

1,105,464,483 (69,097,766) 1,036,366,717 26,869,558 442,953,573 26,062,663 527,625 298,931,561 872,518,966 694,058,044


135

(a.4) Concentration of financial assets and liabilities by geographical location:

December 31, 2011

Lebanon Middle East and Africa North America Europe Other Total

LBP’000

FINANCIAL ASSETS

Cash and Central Bank 560,454,203 - - 32,742,305 - 593,196,508

Deposits with banks and financial Institutions 12,377,600 11,636,049 77,335,468 92,968,456 631,134 194,948,707

Investments at fair value through profit or loss 156,199,936 - 6,959,518 12,279,493 - 175,438,947

Investments at fair value through other comprehensive income 5,932,885 - - - - 5,932,885

Loan to a bank 7,058,077 - - - - 7,058,077

Loans and advances to customers 1,506,410,574 44,510,444 607,285 758,618,485 342,909 2,310,489,697

Investments at amortized cost 2,551,285,239 - 100,042,851 396,025,015 - 3,047,353,105

Total 4,799,718,514 56,146,493 184,945,122 1,292,633,754 974,043 6,334,417,926

FINANCIAL LIABILITIES

Deposits from banks 2,135,501 518,635 11,084 5,346,703 - 8,011,923

Customers’ accounts at amortized cost 3,827,730,322 265,927,053 21,193,856 1,263,645,128 71,485,612 5,449,981,971

Other borrowings 268,252,542 62,014 - 224,857,421 - 493,171,977

Subordinated bonds - - - 19,296,044 - 19,296,044

Total 4,098,118,365 266,507,702 21,204,940 1,513,145,296 71,485,612 5,970,461,915

Overdue regular loans and bills outstanding as at December 31, 2011 and 2010 for BLC Group are as follows:

December 31,

2011 2010

LBP’000

Between 60 and 90 days 35,970,000 6,782,000

Between 90 and 180 days 20,589,000 8,631,000

Between 180 and 360 days 35,760,000 2,812,000

More than 360 days 40,789,000 -


137

operations or unanticipated events. Through Assets and Liabilities Committee, the Board of Directors is responsible for establishing the liquidity policy as well as approving operating and contingency procedures and monitoring liquidity on an ongoing basis. The treasury department is responsible for planning and executing their funding activities and strategy.

Liquidity management and business unit activities are managed consistent with a strategy of funding stability, flexibility and diversity. It includes:

B. Liquidity Risk

Liquidity risk is the risk that the Group will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately.

1. Management of liquidity risk

Liquidity management involves maintaining ample and diverse funding capacity, liquid assets and other sources of cash to accommodate fluctuations in asset and liability levels due to changes in their business

December 31, 2010

Lebanon Middle East and Africa North America Europe Other Total

LBP’000

FINANCIAL ASSETS

Cash and Central Bank 558,876,097 - - - - 558,876,097

Deposits with banks and financial institutions 20,843,811 41,958,733 44,584,603 201,175,529 254,065 308,816,741

Trading securities 16,263,637 - - - - 16,263,637

Loan to a bank 7,058,586 - - - - 7,058,586

Loans and advances to customers 988,164,001 27,945,678 283,246 19,844,356 129,436 1,036,366,717

Available-for-sale investment securities 2,042,633,894 7,235,150 5,083,101 16,006,557 - 2,070,958,702

Held-to-maturity investment securities 450,714,662 - - 404,443 - 451,119,105

Total 4,084,554,688 77,139,561 49,950,950 237,430,885 383,501 4,449,459,585


Deposits from banks 21,798,466 1,091,051 - 24,087,774 - 46,977,291

Customers’ accounts 3,431,629,968 182,278,579 15,172,449 288,890,694 6,942,553 3,924,914,243

Other borrowings 196,309,135 271,426 - - - 196,580,561

Total 3,649,737,569 183,641,056 15,172,449 312,978,468 6,942,553 4,168,472,095


Day-to-day funding managed by monitoring future cash flows to ensure that requirements can bet met;

Maintenance of a portfolio of liquid and marketable assets;

Daily and forecast cash flow management;

Implementation of long-term funding strategies.

The cumulative impact of these various elements is monitored on at least a monthly basis by ALCO. Monitoring and reporting take the form of cash flow

measurement and projections. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection data of the financial assets.

2. Exposure to liquidity risk

Regulatory requirements

The Group ensures that it is in compliance with the liquidity limits in Lebanese Pound and foreign currencies as established by Central Bank of Lebanon.

139

Residual contractual maturities of financial assets and liabilities:

The tables below show the Group’s financial assets and liabilities in Lebanese Pound and foreign currencies baseaccounts segregated by maturity:

December 31, 2011Lebanese Pound Base Accounts

Not Subject to Maturity Up to 3 Months 3 to 12 Months 1 to 3 years 3 to 5 years Over 5 years Total

LBP’000

FINANCIAL ASSETSCash and Central Bank 76,627,899 37,556,691 - - - - 114,184,590Deposits with banks and financial institutions 175,857 - - - - - 175,857Investments at fair value through profit or loss 1,325 1,326,705 1,057,386 80,198,887 - - 82,584,303Investments at fair value through other comprehensive income 5,325,056 - - - - - 5,325,056

Loan to a bank 58,077 7,000,000 - - - - 7,058,077Loans and advances to customers 9,189,897 18,746,115 75,742,795 156,001,218 85,127,148 171,862,585 516,669,758Investments at amortized cost - 58,911,352 119,485,408 509,300,389 546,309,148 539,101,474 1,773,107,771Total Financial Assets 91,378,111 123,540,863 196,285,589 745,500,494 631,436,296 710,964,059 2,499,105,412

FINANCIAL LIABILITIESDeposits from banks 352,033 - - - - - 352,033Customers’ accounts at amortized cost 92,156,181 1,725,238,861 206,076,138 - - - 2,023,471,180Other borrowings 1,174,232 1,007,882 6,366,204 188,091,357 48,981,711 - 245,621,386Total Financial Liabilities 93,682,446 1,726,246,743 212,442,342 188,091,357 48,981,711 - 2,269,444,599

Maturity Gap (2,304,335) (1,602,705,880) (16,156,753) 557,409,137 582,454,585 710,964,059 229,660,813

December 31, 2011Foreign Currencies Base Accounts


LBP’000

FINANCIAL ASSETSCash and Central Bank 101,085,424 376,415,283 - 1,511,211 - - 479,011,918Deposits with banks and financial institutions 114,560,159 70,991,464 9,221,227 - - - 194,772,850Investments at fair value through profit or loss 11,119,995 1,123,921 - 73,033,067 2,145,013 5,432,648 92,854,644

Investments at fair value through other comprehensive income 607,829 - - - - - 607,829

Loans and advances to customers 11,950,723 144,311,781 476,241,330 614,460,123 132,664,212 414,191,770 1,793,819,939Investments at amortized cost - 223,541,135 186,021,336 209,877,264 227,924,508 426,881,091 1,274,245,334Total Financial Assets 239,324,130 816,383,584 671,483,893 898,881,665 362,733,733 846,505,509 3,835,312,514

FINANCIAL LIABILITIESDeposits from banks 3,105,699 4,554,191 - - - - 7,659,890Customers’ accounts at amortized cost 311,868,996 2,235,437,919 840,182,990 408,178 38,612,708 - 3,426,510,791Other borrowings 22,044 217,378,547 753,750 3,015,000 26,381,250 - 247,550,591Subordinated bonds 1,897,738 3,808 - - - 17,394,498 19,296,044Total Financial Liabilities 316,894,477 2,457,374,465 840,936,740 3,423,178 64,993,958 17,394,498 3,701,017,316Maturity Gap (77,570,347) (1,640,990,881) (169,452,847) 895,458,487 297,739,775 829,111,011 134,295,198


141

December 31, 2010Lebanese Pound Base Accounts


LBP’000

FINANCIAL ASSETSCash and Central Bank 117,759,035 19,400,000 - - - - 137,159,035Deposits with banks and financial institutions 47,114 11,000,000 - - - - 11,047,114Trading securities - 1,799,159 - 1,115,170 - 2,214,812 5,129,141Loan to a bank 58,586 - - - - 7,000,000 7,058,586Loans and advances to customers 10,153,729 17,227,135 69,277,793 127,947,728 68,463,972 117,222,934 410,293,291Available-for-sale investment securities 4,624,256 63,279,422 166,015,315 374,943,440 431,330,935 384,786,945 1,424,980,313Held-to-maturity investment securities - 2,052,890 - - 185,000,000 - 187,052,890Total Financial Assets 132,642,720 114,758,606 235,293,108 504,006,338 684,794,907 511,224,691 2,182,720,370

FINANCIAL LIABILITIESDeposits from banks 1,902,695 12,025,472 248,152 - - - 14,176,319Customers’ accounts 98,050,042 1,499,072,797 172,252,595 - - - 1,769,375,434Other borrowings - 1,401,415 2,063,628 6,206,173 186,637,919 - 196,309,135Total Financial Liabilities 99,952,737 1,512,499,684 174,564,375 6,206,173 186,637,919 - 1,979,860,888Maturity Gap 32,689,983 (1,397,741,078) 60,728,733 497,800,165 498,156,988 511,224,691 202,859,482

December 31, 2010Foreign Currencies Base Accounts


LBP’000

FINANCIAL ASSETSCash and Central Bank 96,473,937 323,735,625 - - 1,507,500 - 421,717,062Deposits with banks and financial Institutions 107,885,253 189,881,372 3,002 - - - 297,769,627Trading securities 6,475,250 97,426 - 953,573 2,510,778 1,097,469 11,134,496Loans and advances to customers 18,484,282 137,736,229 279,393,061 114,155,446 50,370,356 25,934,052 626,073,426Available-for-sale investment securities 17,443,104 11,327,565 38,465,303 172,721,840 68,812,150 337,208,427 645,978,389Held-to-maturity investment securities - 4,192,273 30,136,600 137,669,192 50,087,191 41,980,959 264,066,215Total Financial Assets 246,761,826 666,970,490 347,997,966 425,500,051 173,287,975 406,220,907 2,266,739,215

FINANCIAL LIABILITIESDeposits from banks 4,542,514 28,258,458 - - - - 32,800,972Customers’ accounts 289,058,938 1,669,086,496 196,790,286 603,089 - - 2,155,538,809Other borrowings - 271,426 - - - - 271,426Total Financial Liabilities 293,601,452 1,697,616,380 196,790,286 603,089 - - 2,188,611,207Maturity Gap (46,839,626) (1,030,645,890) 151,207,680 424,896,962 173,287,975 406,220,907 78,128,008


143

The market risk is the risk that the fair value or future cash flows of a financial instrument will be affected because of changes in market prices such as interest rate, equity prices, foreign exchange and credit spreads.

Currency risk:

Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in other currencies. The types of instruments exposed to this risk include investments in

foreign currency-denominated loans, foreign currency-denominated securities, future cash flows in foreign currencies arising from foreign exchange transactions, and foreign-currency denominated debt.

Exposure to foreign exchange risk:

Below is the carrying value of assets and liabilities segregated by major currencies to reflect Group’s exposures to foreign currency exchange risk at year end:

C. Market Risks

December 31, 2011LBP USD Euro STG Other Total

LBP’000

ASSETSCash and Central Bank 114,184,590 442,461,779 35,306,951 1,232,899 10,289 593,196,508Deposits with banks and financial institutions 175,857 141,853,742 19,342,690 18,512,188 15,064,230 194,948,707Investments at fair value through profit or loss 82,584,303 77,480,820 8,414,306 6,959,518 - 175,438,947Investments at fair value through other comprehensive income 5,325,056 598,241 9,588 - - 5,932,885Loan to a bank 7,058,077 - - - - 7,058,077Loans and advances to customers 516,669,758 1,045,228,792 736,428,124 1,142,504 11,020,519 2,310,489,697Investments at amortized cost 1,773,107,771 789,033,523 477,606,319 7,605,492 - 3,047,353,105Investment properties - - 17,595,768 - - 17,595,768Customers’ liability under acceptances 449,999 15,203,848 10,408,945 363,375 17,036,568 43,462,735Assets acquired in satisfaction of loans 13,495,182 77,797,162 - - - 91,292,344Property and equipment 64,363,696 - 11,937,333 - - 76,301,029Intangible assets 1,968,178 - 578,964 - - 2,547,142Deferred charges on business acquisition 32,172,956 - - - - 32,172,956Goodwill - - 40,683,630 - - 40,683,630Other assets 7,629,651 9,068,259 1,483,121 212 869 18,182,112Total Assets 2,619,185,074 2,598,726,166 1,359,795,739 35,816,188 43,132,475 6,656,655,642

LIABILITIESDeposits from banks 352,033 2,352,709 5,083,215 40,656 183,310 8,011,923Customers’ accounts at amortized cost 2,023,471,180 2,308,212,151 1,067,856,273 34,929,205 15,513,162 5,449,981,971Liability under acceptances 449,999 15,203,848 10,408,945 363,375 17,036,568 43,462,735Other borrowings 245,621,386 30,233,929 217,316,662 - - 493,171,977Subordinated bonds - - 19,296,044 - - 19,296,044Other liabilities 29,419,578 25,551,911 7,700,396 6,292 55,615 62,733,792Provisions 21,850,773 2,397,981 11,850,601 - - 36,099,355Total liabilities 2,321,164,949 2,383,952,529 1,339,512,136 35,339,528 32,788,655 6,112,757,797Currency to be received 4,507,000 41,678,286 6,896,216 829,344 15,210,235 69,121,081Currency to be delivered 225,375 25,778,624 24,900,712 1,351,331 16,656,622 68,912,664

4,281,625 15,899,662 (18,004,496) (521,987) (1,446,387) 208,417Net assets 302,301,750 230,673,299 2,279,107 (45,327) 8,897,433 544,106,262


145

Interest rate risk

Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities, certain trading-related assets

and liabilities, deposits, borrowings and derivative instruments. Interest rate repricing gap is used to estimate the impact on earnings of an adverse movement in interest rates.

December 31, 2010LBP USD Euro STG Other Total

LBP’000

ASSETSCash and Central Bank 137,159,035 416,689,338 4,747,240 280,484 - 558,876,097Deposits with banks and financial institutions 11,047,114 191,253,724 96,284,980 7,489,759 2,741,164 308,816,741Trading securities 5,129,141 11,134,496 - - - 16,263,637Loan to a bank 7,058,586 - - - - 7,058,586Loans and advances to customers 410,293,291 611,666,862 12,083,989 124,762 2,197,813 1,036,366,717Available-for-sale investment securities 1,424,980,313 597,798,610 48,179,779 - - 2,070,958,702Held-to-maturity investment securities 187,052,890 264,066,215 - - - 451,119,105Customers’ liability under acceptances 150,000 9,703,283 2,117,533 - 8,035,757 20,006,573Assets acquired in satisfaction of loans 13,434,176 82,803,627 - - - 96,237,803Property and equipment 56,663,057 - - - - 56,663,057Intangible assets 2,813,616 - - - - 2,813,616Deferred charges on business acquisition 37,648,050 - - - - 37,648,050Other assets 7,164,404 4,783,124 1,037 - - 11,948,565Total Assets 2,300,593,673 2,189,899,279 163,414,558 7,895,005 12,974,734 4,674,777,249

LIABILITIESDeposits from banks and financial institutions 14,176,319 14,995,786 15,787,199 204,389 1,813,598 46,977,291Customers’ accounts 1,769,375,434 2,000,541,125 144,663,067 7,695,559 2,639,058 3,924,914,243Liability under acceptances 150,000 9,703,283 2,117,533 - 8,035,757 20,006,573Other borrowings 196,309,135 271,426 - - - 196,580,561Other liabilities 30,343,709 35,224,118 251,970 3,424 15,564 65,838,785Provisions 18,461,325 5,733,533 - - - 24,194,858Total Liabilities 2,028,815,922 2,066,469,271 162,819,769 7,903,372 12,503,977 4,278,512,311Currency to be received 1,510,275 19,117,378 8,181,514 709,741 12,139,452 41,658,360Currency to be delivered - 20,212,573 8,535,301 709,334 12,187,767 41,644,975

1,510,275 (1,095,195) (353,787) 407 (48,315) 13,385Net Assets 273,288,026 122,334,813 241,002 (7,960) 422,442 396,278,323


147

December 31, 2011

Lebanese Pounds

Floating Interest Rate Fixed Interest Rate

Not Subject to Interest

Up to 3 Months

3 Months to 1 year 1 to 3 years 3 to 5 years

Over 5 years Total Up to 3 Months

3 Months to 1 year 1 to 3 years 3 to 5 years Over 5 years Total Grand Total

LBP’000

ASSETS

Cash and Central Bank 76,627,899 - - - - - - 37,556,691 - - - - 37,556,691 114,184,590

Deposits with banks and financial institutions 175,857 - - - - - - - - - - - - 175,857

Investments at fair value through profit or loss 1,326,705 - - - - - - 1,325 1,057,386 80,198,887 - - 81,257,598 82,584,303

Investments at fair value through other comprehensive income 5,325,056 - - - - - - - - - - - - 5,325,056

Loan to a bank 58,077 7,000,000 - - - - 7,000,000 - - - - - - 7,058,077

Loans and advances to customers 11,619,896 2,809,218 - - - - 2,809,218 13,506,898 75,742,795 156,001,218 85,127,148 171,862,585 502,240,644 516,669,758

Investments at amortized cost 29,448,501 - - - - - - 29,462,851 119,485,408 509,300,389 546,309,148 539,101,474 1,743,659,270 1,773,107,771

Customers’ liability under acceptances 449,999 - - - - - - - - - - - - 449,999

Assets acquired in satisfaction of loans 13,495,182 - - - - - - - - - - - - 13,495,182

Property and equipment 64,363,696 - - - - - - - - - - - - 64,363,696

Intangible assets 1,968,178 - - - - - - - - - - - - 1,968,178

Deferred charges on business acquisition 32,172,956 - - - - - - - - - - - - 32,172,956

Other assets 11,911,276 - - - - - - - - - - - - 11,911,276

Total Assets 248,943,278 9,809,218 - - - - 9,809,218 80,527,765 196,285,589 745,500,494 631,436,296 710,964,059 2,364,714,203 2,623,466,699

LIABILITIES

Deposits from banks 352,033 - - - - - - - - - - - - 352,033

Customers’ accounts at amortized cost 106,888,328 2,176,863 - - - - 2,176,863 1,708,329,851 206,076,138 - - - 1,914,405,989 2,023,471,180

Liability under acceptances 449,999 - - - - - - - - - - - - 449,999

Other borrowings 1,174,232 - - - - - - 1,007,882 6,366,204 188,091,357 48,981,711 - 244,447,154 245,621,386

Other liabilities 29,419,578 - - - - - - - - - - - - 29,419,578

Provisions 21,850,773 - - - - - - - - - - - - 21,850,773

Total Liabilities 160,134,943 2,176,863 - - - - 2,176,863 1,709,337,733 212,442,342 188,091,357 48,981,711 - 2,158,853,143 2,321,164,949

Interest rate gap 88,808,335 7,632,355 - - - - 7,632,355 (1,628,809,968) (16,156,753) 557,409,137 582,454,585 710,964,059 205,861,060 302,301,750

Exposure to Interest rate risk

Below is a summary of the Group’s interest rate gap position on assets and liabilities reflected at carrying amounts at year end segregated between floating and

fixed interest rate earning or bearing and between Lebanese Pound and foreign currencies base accounts:


149

December 31, 2011

Foreign Currencies



Up to 3 Months

3 Months to 1 year 1 to 3 years 3 to 5 years Over 5 years Total

Up to 3 Months


LBP’000

ASSETS

Cash and Central Bank 101,085,424 - - - - - - 376,415,283 - 1,511,211 - - 377,926,494 479,011,918

Deposits with banks and financial institutions 115,954,344 1,347,281 - - - - 1,347,281 68,249,998 9,221,227 - - - 77,471,225 194,772,850

Investments at fair value through profit or loss 12,243,916 - - - - - - - - 73,033,067 2,145,013 5,432,648 80,610,728 92,854,644

Investments at fair value through other comprehensive income 607,829 - - - - - - - - - - - - 607,829

Loans and advances to customers 19,091,548 68,059,123 251,150,227 171,999,879 - 322,044,682 813,253,911 69,111,833 225,091,103 442,460,244 132,664,212 92,147,088 961,474,480 1,793,819,939

Investments at amortized cost 12,649,796 - - - - - - 210,891,339 186,021,336 209,877,264 227,924,508 426,881,091 1,261,595,538 1,274,245,334

Investment properties 17,595,768 - - - - - - - - - - - - 17,595,768

Customers’ liability under acceptances 43,012,736 - - - - - - - - - - - - 43,012,736



Intangible assets 578,964 - - - - - - - - - - - - 578,964

Goodwill 40,683,630 - - - - - - - - - - - - 40,683,630

Other assets 6,479,253 - - - - - - - - - - - - 6,479,253

Total Assets 459,717,703 69,406,404 251,150,227 171,999,879 - 322,044,682 814,601,192 724,668,453 420,333,666 726,881,786 362,733,733 524,460,827 2,759,078,465 4,033,397,360

LIABILITIES

Deposits from banks 2,871,479 156,017 - - - - 156,017 4,632,394 - - - - 4,632,394 7,659,890

Customers’ accounts at amortized cost 577,729,450 121,036,857 - - - - 121,036,857 1,848,540,608 840,182,990 408,178 38,612,708 - 2,727,744,484 3,426,510,791

Liability under acceptances 43,012,736 - - - - - - - - - - - - 43,012,736

Other borrowings 22,044 - - - - - - 217,378,547 753,750 3,015,000 26,381,250 - 247,528,547 247,550,591

Subordinated bonds - 1,901,546 - - - - 1,901,546 - - - - 17,394,498 17,394,498 19,296,044


Provisions 14,248,582 - - - - - - - - - - - - 14,248,582

Total Liabilities 671,198,505 123,094,420 - - - - 123,094,420 2,070,551,549 840,936,740 3,423,178 64,993,958 17,394,498 2,997,299,923 3,791,592,848

Interest rate gap (211,480,802) (53,688,016) 251,150,227 171,999,879 - 322,044,682 691,506,772 (1,345,883,096) (420,603,074) 723,458,608 297,739,775 507,066,329 (238,221,458) 241,804,512


151

December 31, 2010

Lebanese Pounds


Not Subjectto Interest

Up to 3 Months


Up to 3Months


LBP’000

ASSETS

Cash, compulsory reserves and deposits at Central Bank 117,759,035 - - - - - - 19,400,000 - - - - 19,400,000 137,159,035

Deposits with banks and financial institutions 47,114 - - - - - - 11,000,000 - - - - 11,000,000 11,047,114

Trading assets - - - - - - - 1,799,159 - 1,115,170 - 2,214,812 5,129,141 5,129,141

Loan to a bank 58,586 - - - - 7,000,000 7,000,000 - - - - - - 7,058,586

Loans and advances to customers 10,153,729 17,227,135 69,277,793 127,947,728 68,463,972 117,222,934 400,139,562 - - - - - - 410,293,291

Available-for-sale investment securities 30,489,631 - - - - - - 37,414,047 166,015,315 374,943,440 431,330,935 384,786,945 1,394,490,682 1,424,980,313

Held-to-maturity investment securities 2,052,890 - - - - - - - - - 185,000,000 - 185,000,000 187,052,890

Banks’ acceptances 150,000 - - - - - - - - - - - - 150,000



Intangible assets 2,813,616 - - - - - - - - - - - - 2,813,616

Deferred charges on business acquisition 37,648,050 - - - - - - - - - - - - 37,648,050

Other assets 8,674,679 - - - - - - - - - - - - 8,674,679

Total Assets 279,944,563 17,227,135 69,277,793 127,947,728 68,463,972 124,222,934 407,139,562 69,613,206 166,015,315 376,058,610 616,330,935 387,001,757 1,615,019,823 2,302,103,948

LIABILITIES

Deposits from banks 1,902,695 25,472 - - - - 25,472 12,000,000 248,152 - - - 12,248,152 14,176,319

Customers’ accounts 98,050,042 2,226,785 - - - - 2,226,785 1,496,846,012 172,252,595 - - - 1,669,098,607 1,769,375,434

Liability under acceptances 150,000 - - - - - - - - - - - - 150,000

Other borrowings 711,284 690,131 2,063,628 6,206,173 1,637,919 - 10,597,851 - - - 185,000,000 - 185,000,000 196,309,135


Provisions 18,461,325 - - - - - - - - - - - - 18,461,325

Total Liabilities 149,619,055 2,942,388 2,063,628 6,206,173 1,637,919 - 12,850,108 1,508,846,012 172,500,747 - 185,000,000 - 1,866,346,759 2,028,815,922

Interest rate gap 130,325,508 14,284,747 67,214,165 121,741,555 66,826,053 124,222,934 394,289,454 (1,439,232,806) (6,485,432) 376,058,610 431,330,935 387,001,757 (251,326,936) 273,288,026


153


December 31, 2010

Foreign Currencies



Up to 3 Months


Up to 3 Months


LBP’000

ASSETS

Cash, compulsory reserves and deposits at Central Bank 96,473,937 - - - - - - 323,735,625 - - 1,507,500 - 325,243,125 421,717,062

Deposits with banks and financial institutions 107,885,254 1,515,874 - - - - 1,515,874 188,365,497 3,002 - - - 188,368,499 297,769,627

Trading assets 6,475,250 - - - - - - 97,426 - 953,573 2,510,778 1,097,469 4,659,246 11,134,496

Loans and advances to customers 18,484,282 124,243,531 255,076,281 114,155,446 50,370,356 25,934,052 569,779,666 13,492,698 24,316,780 - - - 37,809,478 626,073,426

Available-for-sale investment securities 28,770,669 - - - - - - - 38,465,303 172,721,841 68,812,150 337,208,426 617,207,720 645,978,389

Held-to-maturity investment securities 4,192,273 - - - - - - - 30,136,600 137,669,191 50,087,191 41,980,960 259,873,942 264,066,215

Banks’ acceptances 19,856,573 - - - - - - - - - - - - 19,856,573


Other assets 3,287,271 - - - - - - - - - - - - 3,287,271

Total Assets 368,229,136 125,759,405 255,076,281 114,155,446 50,370,356 25,934,052 571,295,540 525,691,246 92,921,685 311,344,605 122,917,619 380,286,855 1,433,162,010 2,372,686,686

LIABILITIES

Deposits from banks 4,542,514 1,494,970 - - - - 1,494,970 26,763,488 - - - - 26,763,488 32,800,972

Customers’ accounts 289,058,938 - - - - - - 1,669,086,496 196,790,286 603,089 - - 1,866,479,871 2,155,538,809

Liability under acceptances 19,856,573 - - - - - - - - - - - - 19,856,573

Other borrowings 2,247 269,179 - - - - 269,179 - - - - - - 271,426


Provisions 5,733,533 - - - - - - - - - - - - 5,733,533

Total Liabilities 354,688,881 1,764,149 - - - - 1,764,149 1,695,849,984 196,790,286 603,089 - - 1,893,243,359 2,249,696,389

Interest rate gap 13,540,255 123,995,256 255,076,281 114,155,446 50,370,356 25,934,052 569,531,391 (1,170,158,738) (103,868,601) 310,741,516 122,917,619 380,286,855 (460,081,349) 122,990,297

155

45 - CAPITAL MANAGEMENT

The Group manages its capital to comply with the capital adequacy requirements set by Central Bank of Lebanon.

Central Bank of Lebanon requires each bank or banking group to hold a minimum level of regulatory capital of LBP 10 billion for the head office and LBP 500 million for each local branch.

The Group’s capital is split as follows:

Tier I capital: Comprises share capital, reserves from appropriation of profits, retained earnings (exclusive of current year’s net profit).

Tier II capital: Comprises cumulative change in fair value for investments at fair value through other comprehensive income, subordinated bonds and general provisions other than those related to loans and advances.

Investments in subsidiaries are deducted from Tier I and Tier II capital.

Also, various limits are applied to the elements of capital base: qualifying Tier II capital cannot exceed Tier I capital and qualifying short term subordinated loan capital may not exceed 50% of Tier I capital. The Group has complied with imposed capital requirements throughout the period.

The Group’s consolidated capital adequacy ratio was as follows:

December 31,

2011 2010

LBP million LBP million

Tier I capital 410,916 239,747

Tier II capital 36,390 36,176

Total regulatory capital 447,306 275,923

Credit risk 3,738,829 2,467,722

Market risk 130,764 21,037

Operational risk 257,188 189,261

Risk-weighted assets and risk-weighted off-balance sheet items 4,126,781 2,678,020

Risk based capital ratio - Tier I 9.96% 8.95%

Risk based capital ratio - Tier I and Tier II capital 10.84% 10.30%


157

46 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

December 31, 2011

Investments Fair Value Profit and Loss

Investments Fair Value Comprehensive Income Amortized Costs Loans and Receivables Other Amortized Cost Total Carrying Value Total Fair Value

LBP’000

FINANCIAL ASSETS

Cash and Central Bank - - - - 593,196,508 593,196,508 593,196,508

Deposits with banks and financial institutions - - - - 194,948,707 194,948,707 194,948,707

Investments at Fair value through profit or loss 175,438,947 - - - - 175,438,947 175,438,947

Investments at fair value through other comprehensive income - 5,932,885 - - - 5,932,885 5,932,885

Loan to a bank - - - 7,058,077 - 7,058,077 7,058,077

Loans and advances to customers - - - 2,310,489,697 - 2,310,489,697 2,325,817,727

Investments at amortized cost - - 3,047,353,105 - - 3,047,353,105 3,008,959,791

Total Financial Assets 175,438,947 5,932,885 3,047,353,105 2,317,547,774 788,145,215 6,334,417,926 6,311,352,642


Deposits and borrowings from banks - - - - 8,011,923 8,011,923 8,011,923

Customers’ accounts - - - - 5,449,981,971 5,449,981,971 5,449,981,971

Other borrowings - - - - 493,171,977 493,171,977 493,171,977

Subordinated bonds - - - - 19,296,044 19,296,044 19,296,044

Total Financial Liabilities - - - - 5,970,461,915 5,970,461,915 5,970,461,915

December 31, 2010

Trading Assets Available-for-Sale Held-to-Maturity Loans and Receivables Other Amortized Cost Total Carrying Value Total Fair Value

LBP’000

FINANCIAL ASSETS

Cash and Central Bank - - - - 558,876,097 558,876,097 558,876,097

Deposits with banks and financial institutions - - - - 308,816,741 308,816,741 308,816,741

Loan to a bank - - - 7,058,586 - 7,058,586 7,058,586

Trading securities 16,263,637 - - - - 16,263,637 16,263,637

Loans and advances to customers - - - 1,036,366,717 - 1,036,366,717 1,039,303,849

Available-for-sale investment securities - 2,070,958,702 - - - 2,070,958,702 2,070,958,702

Held-to-maturity investment securities - - 451,119,105 - - 451,119,105 466,488,932

Total Financial Assets 16,263,637 2,070,958,702 451,119,105 1,043,425,303 867,692,838 4,449,459,585 4,467,766,544


Deposits from banks - - - - 46,977,291 46,977,291 46,977,291

Customers’ accounts - - - - 3,924,914,243 3,924,914,243 3,924,914,243

Other borrowings - - - - 196,580,561 196,580,561 196,580,561

Total Financial Liabilities - - - - 4,168,472,095 4,168,472,095 4,168,472,095


159

December 31, 2011

Level 1 Level 3 Total

LBP’000

Investments at fair value through profit or loss 10,096,574 165,342,373 175,438,947

Investments at fair value through other comprehensive income - 5,932,885 5,932,885

10,096,574 171,275,258 181,371,832

December 31, 2010

Level 1 Level 3 Total

LBP’000

Trading securities 16,263,637 - 16,263,637

Available-for-sale investment securities 7,772,821 2,063,185,881 2,070,958,702

24,036,458 2,063,185,881 2,087,222,339

The basis for the determination of the estimated fair values with respect to financial assets and liabilities carried at amortized cost and for which quoted market prices are not available, is summarized as follows:

(a) Deposits with Central Bank and financial institutions:

The fair value of current deposits (including non-interest earning compulsory deposits with Central Banks), and overnight deposits is their carrying amount.

(b) Loans and advances to customers and to banks:

The estimated fair value of loans and advances to customers is based on the discounted amount of expected future cash flows determined at current market rates.

The following table provides an analysis of financial instruments that are measured subsequent to initial

recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

(c) Held-to-maturity investment securities:

The estimated fair value of held-to-maturity investment securities is based on current yield curve appropriate for the remaining period to maturity.

(d) Deposits and borrowings from banks and customers’ deposits:

The fair value of deposits with current maturity or no stated maturity is their carrying amount. The estimated fair value on other deposits is based on the discounted cash flows using interest rates for new deposits with similar remaining maturity.

(e) Other borrowings:

The estimated fair value of other borrowings is the discounted cash flow based on a current yield curve appropriate for the remaining period to maturity.

47 - RELATED PARTy TRANSACTIONS

In the ordinary course of business, the Group carries on transactions with subsidiaries and related parties, balances of which are disclosed in the statement of financial position in Notes 7, 10, 20 and 39.

Remuneration to executive management paid during 2011 amounted to LBP 5.47 billion (LBP 4.34 billion in 2010).

48 - APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements for the year ended December 31, 2011 were approved by the Board of Directors in its meeting held on February 27, 2012.


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163

B L C B A N K B R A N C H E S

MAIN BRANCH ADLIEHAdlieh Square - BLC Bank BldgT 01 387 000 / 01 429 000F 01 616 984 Manager Roula KORBAN

ACHRAFIEH - SASSINEAdib Ishac Street - Jerbaka BldgT 01 200 990 / 01 200 991 F 01 339 664 Manager Roy SHKEIR

ANTELIASOld Tripoli Street - Sauma CenterT 04 418 080 F 04 522 018Manager Jeanane ABOU JAOUDE

BAABDA Baabda Square Area - Michel Helou Bldg T 05 468 084 / 05 468 085F 05 921 820 Manager Tanios BERBERI BATROUN Main Road - BLC Bank Bldg T 06 642 166 / 06 741 599 F 06 742 812Manager Elie EL HAJJ BECHARREH Main Road - Elie Geagea BldgT 06 671 101 / 06 672 767F 06 671 585 Manager Tony SALEH

BEIT CHABEB Al Blata Area - BLC Bank Bldg T 04 980 840 - 04 984 297 F 04 984 298 Manager Jean JABR BIKFAyA Bikfaya Square Area - Municipality Bldg T 04 981 602 / 04 984 101F 04 986 266 Manager Joe COPTI BOURJ HAMMOUD Tripoli Street - Maronite Monks BldgT 01 260 855 / 01 241 689 F 01 241 689 Manager Albert BABIKIAN CHEKKA Main Road - Michel El Hallal BldgT 06 540 728 / 06 545 028F 06 540 728Manager Fadwa GERGI CHIAH Saida Road - Awad BldgT 01 389 515 - 01 385 185 F 01 387 411 Manager Hassan MORTADA CHTAURA Damascus Main Road - BLC Bank Bldg T 08 545 422 / 08 545 423F 08 545 424 Manager Alia SABBOURY

165

DEKwANEH Sed El Bauchrieh Street - Kamar Center T 01 692 060 / 01 692 070F 01 687 647 Manager Raymonde WAZEN DORA Dora Highway - BLC Bank Bldg T 01 264 450 - 01 258 275 F 01 260 856 Manager Gaby KIWAN FURN EL CHEBBAK Damascus Main Road - Fares Younes Bldg T 01 613 247 / 01 613 248 F 01 613 247 Manager Gaby KASSAB GHOBEIRyGhobeiry Street - Akil Berro Bldg T 01 272 772 / 01 548 600F 01 275 737 Manager Nadim NAZZAL HADATH Al Ain Square- Michel Kherbawi Bldg T 05 460 034 / 05 467 438F 05 460 425 Manager Robert MATTA HAMRA Hamra Street - Toufic Assaf BldgT 01 340 450 / 01 350 060 F 01 348 512 Manager Imad TABBARA

HAZMIEH Damascus Main Road - Michael Mansour BldgT 05 454 722 / 05 455 547 F 05 457 177 Manager Pierre BEJJANI HERMEL Shahine CenterT 08 201 771 / 08 201 772F 08 201 773Manager Nabil HAMADEH JAL EL DIB Main Road - Yachoui Bldg T 04 723 200 / 04 723 201F 04 723 203 Manager Joseph ABOU KHALIL JBEIL Main Road - BLC Bank Bldg T 09 540 150 / 09 546 956F 09 546 955 Manager Jean-Claude ZAKHIA JOUNIEH Main Road - Stephan Bldg T 09 910 800F 09 835 219 Manager Elias NADER KOUSBA Main Road - Nicolas CenterT 06 510 125 / 06 511 132F 06 510 125 Manager Georges CHEHADE

MAR ELIAS Mar Elias Street - Dar El Baida Bldg T 01 703 805 / 01 703 806F 01 703 805 Manager Nada ABDEL SAMAD MAR MIKHAEL Mar Mikhael Street - BLC Bank BldgT 01 565 700 / 01 565 701F 01 444 449 Manager Boutros MOUAWAD MAZRAA Corniche Mazraa - Koussa Bldg T 01 631 634 / 01 653 403 F 01 631 634 Manager Abdel Kader CAPTAN NABATIEH Commercial Street - Khail Center T 07 764 780 / 07 764 781 F 07 760 234Manager Mohammad ABDALLAH RABIEH Bikfaya Main Road - Municipality Bldg T 04 410 559 / 04 411 798 F 04 417 010 Manager Elias AZZI SAIDA Riad El Solh Street - BLC Bank BldgT 07 722 330 / 07 722 331 F 07 725 330 Manager Mouhamad EL GHANDOUR

SOUR Al Massaref Street - Issa BldgT 07 343 100 / 07 343 101 F 07 343 313 Manager Rami CHEHOURI TABARIS Charles Malek Street - Tabaris 812 BldgT 01 200 992 / 01 204 551 F 01 200 992 Manager Marwan YOUNAN TRIPOLI - EL MINA Rue des Douanes - Dacnashe Bldg T 06 201 093 / 06 600 211 F 06 600 211 Manager Georges ZABLITH TRIPOLI - EL TELL Karm Al Kallah Street - BLC Bank BldgT 06 430 210 / 06 430 211 F 06 432 896 Manager Talal EL YAFI ZOUK MIKAEL Main Road - Antoine Akiki Center T 09 212 225 / 09 212 226 F 09 211 675 Manager Marcel HASHEM

167

S U B S I D I A R I E S

USB BANK PLC

83 Dhigenis Akritas AvenueTel: +357 22 883333Fax: +357 22 875899P.O. Box 28510Nicosia, CyprusEmail: [email protected]

BLC FINANCE S.A.L.

Tabaris 812 building, Ashrafieh2064-5809 Beirut, LebanonTel: +961 (1) 204 811/22Fax: +961 (1) 204 [email protected]

BLC INVEST S.A.L.

Royal Tower buildingNicolas Turk str., AshrafiehP.O. Box: 175-454 Beirut – LebanonTel: +961 (1) 566 207/8/9 Fax: +961 (1) 565 311

BLC SERVICES S.A.L.

BLC Bank building, Adlieh square, P.O. Box: 11-1126 Beirut – LebanonTel: +961 (1) 429 000 Fax: +961 (1) 398 044

169

C O R R E S P O N D E N T B A N K S

COUNTRy NAME OF CORRESPONDENT SwIFT CODE

ALGERIA Fransabank El Djazair SPA FSBK DZ AL

AUSTRALIA Westpac Banking Corporation WPAC AU 2F

AUSTRIA UniCredit Bank Austria AG BKAU AT WW

BELGIUM KBC Bank Nv KRED BE BB

CANADA JP Morgan Chase Bank - Toronto CHAS CA TT

CYPRUS USB Bank Plc UNvK CY 2N

DENMARK Danske Bank A/S DABA DK KK

EGYPT Banque Misr SAE BMIS EG CX

FRANCE

Fransabank (France) SA FRAF FR PP

Al Khaliji Bank (France) SA LICO FR PP

Union de Banques Arabes et Françaises - UBAF UBAF FR PP

GERMANY

Commerzbank AG COBA DE FF

Deutsche Bank AG DEUT DE FF

JP Morgan AG CHAS DE FX

ITALYIntesa Sanpaolo SpA BCIT IT MM

Unicredit Spa UNCR IT MM

JAPAN The Bank of New York Mellon- Japan Branch IRvT JP JX

JORDAN The Housing Bank for Trade & Finance HBHO JO AX

KUWAITAl Ahli Bank of Kuwait KSC ABKK KW KW

National Bank of Kuwait NBOK KW KW

NORWAY Nordea Bank Norge ASA NDEA NO KK

qATAR

qatar National Bank SAq qNBA qA qA

Al Khalij Commercial Bank qSC KLJI qA qA

The Commercial Bank of qatar qSC ABqq qA qA

SAUDI ARABIA The National Commercial Bank NCBK SA JE

SPAIN Banco de Sabadell SA BSAB ES BB

SRI LANKA Bank of Ceylon BCEY LK LX

SWEDEN Skandinaviska Enskilda Banken AB (Publ) ESSE SE SS

SWITZERLAND Zürcher Kantonalbank ZKBK CH ZZ

THE PHILIPPINES Bank of the Philippine Islands BOPI PH MM

TURKEY

Türkiye Finans Katilim Bankasi AFKB TR IS

Asya Katilim Bankasi A S ASYA TR IS

Turkland Bank AP TBNK TR IS

UNITED ARAB EMIRATESAl Khaliji Bank (France) SA - Dubai Branch LICO AE AD

Mashreqbank psc BOML AE AD

UNITED KINGDOMJPMorgan Chase Bank - London CHAS GB 2L

Lloyds Bank TSB MIDL GB 22

UNITED STATES OF AMERICA

JPMorgan Chase Bank NA CHAS US 33

The Bank of New York Mellon IRvT US 3N

Standard Chartered Bank, New York SCBL US 33

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